A litigation financing investment token has launched on Avalanche's blockchain
December 14, 2020, 10:36AM EST · 2 min read
- The token will entitle investors to a portion of payouts from lawsuits
- The returns can be lucrative, but come with the risk of loss of capital
The Avalanche blockchain is hosting a new kind of token designed to allow retail investors to invest in the outcome of lawsuits.
The so-called ‘Initial Litigation Offering’ is the brainchild of Avalanche creator Ava Labs, US law-firm Roche Cyrulnik Freedman LLP and Republic Advisory Services, a consultancy.
Many individuals lack the funds to pursue legal action; litigation financing allows investors to cover the costs of a claim in return for a portion of the payout, should the claim prove successful. For the new ILO on Avalanche, the right to such a payout has been tokenised, and would be delivered as a digital asset.
Investors run the risk, of course, that claims prove unsuccessful – just as investors in ICOs or equity crowdfunding offerings take their chances that the issuers of those tokens or shares may fail.
In a press release, Ava Labs highlighted the example of LexShares, a leading litigation fund, which has generated a median annualised return after fees and expenses of 52% since it began investing in 2014. Those returns, however, come from having invested in over 100 cases.
“This is a huge new market class that is being now made fully liquid and made available to retail investors,” Kevin Sekniqi, co-founder and chief operating officer of Ava Labs, told the Block.
Asked whether individual investors could achieve the right level of diversification with limited funds, Sekniqi said “the first tokenised litigation financing instruments are going to be highly advantageous to the holders."
“There are no sure-fire wins, they’re just more curated because there are fewer of them,” he added.
Litigation financing, which Ava Labs reckons is worth $10 billion globally, has already been opened to retail investors by crowdfunding platforms. UK-based AxiaFunder is one such example.
What, then, can blockchain technology – or more specifically, the Avalanche blockchain – bring to the asset class?
“The reason from a practical perspective why I think blockchain-based markets enable and bring really a disruptive force to litigation finance is the power it gives to making a market both liquid and truly transferrable around the world,” said Kyle Roche of Roche Cyrulnik Freedman LLP.
Roche added that blockchain gives lawyers “a mechanism to pay out and distribute” funds for successful cases.
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