As investors, we're always looking to gain an edge and be at the forefront of new developments in the sphere. Initial Litigation Offerings aren't a new concept per se, but it is only starting to get introduced into the crypto world. While investing in Initial Litigation Offerings is a possibility outside of crypto, you need to be an accredited investor to take part - which locks most people out of this type of scheme. Crypto ILO's aim to democratize and allow any investor to take part and profit from the process.
What are Initial Litigation Offerings?
It is essentially a way of investing and getting a share in lucrative litigations. Oftentimes, litigations are expensive to fund and therefore don't progress much. ILO's offer a way for litigants to raise money so they may go ahead with a litigation case that they would otherwise not afford, in return, they offer a share of the potential winnings for the investors. Therefore, you as an investor will be funding an ongoing litigation and receive a share of the final financial reward.
In a traditional ILO, a law firm or a litigant will approach a Commercial Litigation Finance Company and seek funding. They will analyze the case and decide whether it has a chance of success. An approximation of the legal costs will be drummed up and then offered out as shares per se.
So, lawsuit X may have been evaluated to have potential damages of up to $50 million dollars but it's expensive to fund. They would then raise $5 million dollars for example to fund the case in return for capital if the case is successful. The risk involved comes from the litigation you're funding losing their case, but the rewards can be very nice.
Crypto ILO's will improve upon traditional ILO's by making them available to all traders, and not merely accredited investors. But the main advantage is that it allows your share in the litigation to be tradeable. Regular ILO's give good returns but can take a long time to give an ROI since some of the cases will drag on for a long time - especially if the case is particularly complicated. For funding a crypto ILO, you will receive a token to represent your share in the case. This token can then be traded on the open market and might fluctuate according to case revelations. Resultingly, you'll be able to sell your token and take profits early if the case has a good chance of success. It may also go through dips, presenting opportunities to pick up a larger share of the potential rewards. Either way, it'll be very interesting how these tokens will operate and fluctuate in the open market.
AVAX - Ava Labs
The first crypto project to offer this service is Ava Labs, the team behind AVAX - a project that has surged in market cap over the past year. They're the first to tokenize the ILO process in the crypto-sphere in the upcoming Apothio litigation case.
Apothio is a company in the US that have a focus on hemp production, to produce CBD oil for medicinal purposes. In 2019, an estimated $1 billion dollars worth of plants were destroyed by the Sheriff's office with no prior warning or authorization. Resulting in "one of the largest alleged wholesale destruction of crops by a state official in the history of the United States". So, this is a massive case with the potential for a massive payout.
There is an ongoing ILO to fund this case on behalf of Apothio against Kern County's Sheriff Office. Investors can purchase ILO tokens that will raise money to fund the litigation represent their share in the potential payouts. If the lawsuit is successful, an investor will get a share + have a multiplier applied to their tokens - the more tokens you have the greater your share and multiplier will be. The payout will then be delivered into the users Avax wallet. Also, to note, the multiplier will increase the longer the case goes on.
Potential rewards as provided by https://republic.com/apothio;
- "200% (2x) of the Purchase Price if a recovery occurs between 0 and 12 months from the Closing Date. For example, if the Purchase Price is $100 (i.e. 100 ILO Tokens), the Buyer shall be entitled to receive $200 (or $200 in USD, or digital equivalent, such as USDC).
- 250% (2.5x) of the Purchase Price if a recovery occurs between 12 and 24 months from the Closing Date. For example, if the Purchase Price is $100 (i.e. 100 ILO Tokens), the Buyer shall be entitled to receive $250 (or $250 in USD, or digital equivalent, such as USDC).
- 300% (3x) of the Purchase Price if a recovery occurs between 24 and 36 months from the Closing Date. For example, if the Purchase Price is $100 (i.e. 100 ILO Tokens), the Buyer shall be entitled to receive $300 (or $300 in USD, or digital equivalent, such as USDC).
- 350% (3.5x) of the Purchase Price if a recovery occurs at any point after 36 months from the Closing Date. For example, if the Purchase Price is $100 (i.e. 100 ILO Tokens), the Buyer shall be entitled to receive $350 (or $350 in USD, or digital equivalent, such as USDC)."
Also, see below of the potential timeline and what that represents;
As you can see, there is a risk if the case is lost that you lose all your initial capital. You will have to do your own research on the case and the risks involved since victory is by no means guaranteed. Though, if the case is dismissed before it goes to court, you'll 'only' lose 20% of your invested capital.
If it does move on, you'll be able to trade your Avax ILO tokens on the open market at https://ryval.market/
You'll be able to buy and sell these tokens and potentially make more than the returns you would get by simply holding. It could see a lot of trading volume and provide a better way of making a return than by simply holding on to the tokens.
Whether this particular case is successful or not, the future of blockchain ILO's is very interesting and could offer a new way to invest. Here's what Kevin Sekniqi from Ava Labs had to say about the development of blockchain ILO's;
"ILOs are a breakthrough for both individuals lacking the resources to seek remediation, and for retail investors who are often locked out of the most highly-performant asset classes. They are fundamentally unique from any other investments, and the creation of the ILO marks the first time blockchain technology will be used to democratize financial products at a multi billion-dollar scale"
If the Apothio experiment goes smoothly, we could see an explosion in ILO's and money could flow into such schemes. It'll give litigants a greater chance of fighting cases by offering wider crowdfunding options, and will open up a new investment avenue for regular traders.
As mentioned in the article, one of the most exciting features will be the option to trade your ILO token on the open market - allowing you to capitalize on your initial capital before the case is over if you wish. It'll be interesting to see how high the trading volume can reach!
Whatever happens, I believe that this is only the first of its kind and we will see it become much more common in the future.
Finally, I need to reiterate to DYOR on the case. If it goes to court and they lose, you will lose all your initial investment so it can be risky and you shouldn't think of this as a guaranteed return.