What is Litigation Finance and Why is it Important to Decentralize?
Liti Capital is opening up the litigation finance market to all through its asset-backed token
This burgeoning asset class, also referred to as litigation or third-party funding, is the practice in which an outside party finances all or part of a lawsuit in return for a percentage of the profit if the case is won. When you fund a lawsuit, you essentially own a piece of it — marking its potential for returns as an asset.
Currently, the option to pursue legal action weighs heavily in the favor of those who can afford to go to court. This leads to a homogenization of parties, cases, and interests — and consequently, to an imbalance of judicial attention. Simply put: the haves are less likely to be sued by the have nots because of the hefty financial commitment litigation requires.
Litigation finance allows outside parties to fund smaller, less powerful litigants and enables a diversification of the cases brought to court, an outcome that can only benefit the public at large.
According to a 2019 report from Validity and ALM Intelligence, a staggering 82% of law firms turned away meritorious legal claims, labeling them as “cost-prohibitive”. This is exactly the sort of problem that litigation finance solves.
Liti Capital is taking it a step further by decentralizing its business model.
It’s no longer a radical idea that blockchain technologies and cryptocurrency are reshaping economic markets.
El Salvador’s Congress just announced they will be requiring businesses to accept bitcoin as a legal form of tender, a game-changer for the country’s primarily fishing and farm-based economy. Digital artist Mike Winkelmann (known as Beeple Crap on various online platforms), sold an NFT this past March for 69 million USD on Christie’s — setting both a record and a precedent for the future of the digital marketplace.
In the litigation finance industry’s relatively short lifespan, access to this asset class has remained exclusive to high-end investors and often ties up funds for multiple years after an initial investment is made. To combat these market limitations, Liti Capital is merging the capabilities of third-party funding and decentralization through equity tokenization.
An Intro to Liti Capital’s ETOs
As it stands, Liti Capital has released two equity token offerings (ETOs), LITI and wLITI.
The incentive model Liti Capital has created for its token holders gives each token option its unique perks and trade-offs. Like a stock, a LITI token represents equity — one LITI token equating to one share in Liti Capital. Equity tokens bridge the gap for retail investors to participate in the litigation finance market by offering instant liquidity and a low barrier to entry. Owning a LITI gives token holders access to company voting rights and a generous 80% return in post-tax profit dividends. LITI tokens can only be purchased through Liti Capital’s website and are subject to KYC identification.
wLITI is a wrapped token, meaning its value is wrapped, or tied to, the value of LITI and is available for trade through Uniswap. 5000 wLITI tokens are of equal value to a single LITI token. wLITI can be purchased anonymously (non-KYC), but owners of wLITI do not hold equity in Liti Capital and will not have access to voting rights or dividends. In other words, LITI functions as equity, while wLITI functions as a trading vehicle. Users can swap LITI for wLITI from the web application, and vice versa, if they successfully pass the KYC process.
LITI tokens are also asset-backed. When Liti Capital funds a lawsuit, they then own a portion of said case. That portion is the litigation asset that backs LITI tokens. Because of this, Liti Capital takes great care to ensure that only cases with the highest probability of success are funded. The three Co-Founders of the company, Jonas Rey, Andy Christen, and Jaime Delgado have combined their expertise in intelligence, data analytics, and machine learning to develop the alpha version of an AI-based tool aiming to improve the case selection process. The AI tool is particularly useful in screening a large number of cases and helps to select the ones that have the highest probability of a successful outcome. Combined with human expertise, an AI-based solution works to mitigate the risk involved in Liti Capital’s funding efforts and proportionally increases the potential for shareholders’ ROI.
Litigation finance is a stable asset class because, by nature, its value is not correlated to the success or failures of financial markets — meaning the outcome of a legal case is not contingent upon market volatility. Decentralization also further decreases the influence of economic fluctuations in traditional stocks, bonds, and property value. Additionally, tokenization encourages investors from a wider range of economic backgrounds to claim a stake in the market by providing flexibility through liquidity — which works to further enhance the market’s appeal.
Decentralizing Doubles Down on the Redistributive Power of Litigation Finance
Decentralizing litigation finance intuitively aligns with the concept of equilibrium between profit and purpose, where no one entity can lay claim to the top of the food chain. Instead, decentralization symbiotically bolsters the industry’s interests in balancing power and generating wealth. Liti Capital provides equity access to the full spectrum of investors. Those investments go directly towards funding carefully selected cases. The outside funding they provide increases the chance of a well-deserving plaintiff receiving justice.
Liti Capital’s new equity token and their emergence into the crypto space gives retail and seasoned investors alike the opportunity to diversify their portfolio with the peace of mind that their investments are in good hands. The average ROI performance of litigation assets currently sits at 50–100%, and the crypto industry provides an average of 60% ROI (all while the volume of crypto traders continually increases). With an estimated market value of $50 billion to $100 billion and projections indicating explosive potential — litigation finance has never looked better.
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