ILOs show that blockchain is not a solution looking for a problem. Rather, it’s an investment in the future of finance and technology. With these offerings, companies are showing how they can be better managed with blockchain technology, but this will depend on overcoming some major hurdles.
The “what’s blockchain” is a type of technology that has been making headlines recently. It seems to be popping up everywhere, but what does it really do? The answer is not as simple as you might think.
The example of Apothio, a hemp producer who is suing a California county for $1 billion, has brought Initial Litigation Offerings (ILOs) into the limelight.
While ILOs are not a novel concept in the realm of blockchain, they demonstrate the power of the technology when used to a long-standing and costly problem: litigation.
Apothio and the Funding Issue in Litigation
Apothio LLC, a vertically-integrated hemp company situated in California, is the subject of a case that has the potential to transform the American legal system.
The firm filed a lawsuit against Kern County and the Kern County Sheriff’s Office in April 2020, accusing them of damaging a $1 billion hemp harvest. The corporation alleges it was the victim of the largest-ever mass destruction of personal property by government organizations in US history, and it is suing the county for $1 billion in damages.
Despite its very valued crop, the corporation is cash-strapped and is struggling to pay the costly lawsuit procedure it is about to embark on.
Since October 2021, the corporation has been attempting to solicit cash from the general public in return for a share of any future recovery from the court. As a result, litigation financing isn’t new, particularly in the United States, where such actions may cost millions of dollars. If a lawsuit settles, litigation funders earn a return on their investment, but if the case is dismissed, they get nothing.
According to Business Insider, the area of lawsuit finance has exploded in recent years, with publicly listed firms and private asset managers spending more than $2 billion in litigants between 2019 and 2020.
Since 2014, LexShares, a major litigation fund in the United States, has invested in 103 cases. So far, 70 percent of the 43 cases handled have resulted in a victory, giving investors a median annualized return of 52 percent.
Litigation financing, on the other hand, is restricted to authorized investors exclusively, who must all fulfill the SEC’s stringent accreditation requirements. Apart from eliminating many smaller investors from the potentially profitable lawsuit finance sector, it also significantly reduces the pool of investors from whom plaintiffs may seek money.
Apothio used crowdfunding to obtain funds for its lawsuit against the California county. Instead of approaching a select group of authorized investors, the business chose a more dispersed approach—a lawsuit offering.
Roche Freedman, one of Apothio’s attorneys, created the word after defending the estate of David Kleiman in the infamous lawsuit against Craig Wright. The firm is a pioneer in the field, with extensive expertise navigating the hazy regulatory landscape that surrounds cryptocurrencies and blockchain technology.
In October 2021, Roche Freedman collaborated with Republic, a crowdfunding platform, to launch Apothio’s $5 million public offering. When a family office gave $150,000 to the initiative last week, it met its minimal fundraising goal. So far, 151 investors have donated more than $344,000 to the lawsuit.
Replicating Apotio’s ILO’s achievement with Ryval
The great interest in Apothio and the success of its ILO immediately made news, prompting Roche Freedman to build a unique ILO platform.
Kyle Roche, a lawyer at Roche Freedman, said the firm has been working with a number of technical and financial partners to get Ryval, a marketplace for initial lawsuit offerings, off the ground.
Roche told Business Insider, “It’s nearly as simple as a GoFundMe.”
The Avalanche blockchain-based marketplace would tokenize lawsuit offers and let users to exchange the tokens. The Securities and Exchange Commission (SEC) would register all of the sales, allowing investors to purchase into litigation for as little as $100. Those with appropriate credentials would be allowed to trade the tokens instantly, while those without would be subject to a one-year lockup period, according to Roche.
“Once the platform is complete, our intention is to have 5 to 10 additional ILOs reasonably fast,” he said, adding that Roche Freedman would not be engaged in most of those instances.
Despite this, the legal firm is presently collaborating with Ava Labs, the company behind Avalanche, and Republic, OpenDeal’s crowdfunding platform.
The triumph of Apothio’s case also exposed some of the ILO’s weaknesses. Roche said that they have gotten a lot of input from the offering’s participants and that more features and alternatives would be added to Ryval.
Most participants agreed that a model that allowed for greater upside in the case of big recoveries would be preferable. For every $1 invested in the existing Apotio model, investors get one ILO token, which is locked for a year. If the lawsuit is resolved, the returns will range from 200 percent to 350 percent, depending on how much time has gone from the time the tokens were issued and the time the case was concluded.
Roche said that the business was looking at ways to provide a model with higher returns in future ILOs, as well as allowing investors to receive a portion of their money back if the case was dismissed early.
Ryval will concentrate on giving greater education about the US legal system and include some of the analytical tools used by attorneys in the nation, since ILOs are a relatively new product, even in the world of crypto. This includes information on case outcomes, which Roche claims will benefit investors in assessing the risks associated with each litigation.
4) Case Studies. We’re working with our partners on this, as @TheNewsHam points out in his piece, and I intend to make the same analytical tools used by attorneys accessible to the public as part of the @ryvalmarket platform.
January 4, 2022 — Kyle Roche (@KyleWRoche)
ILOs were a breakthrough, according to Kevin Sekniqi, creator of Ava Labs, for both persons seeking remediation and ordinary investors who are frequently barred out of most high-performing asset classes.
“They’re significantly different from traditional investments, and the ILO is the first time blockchain technology has been used to democratize financial goods on a multibillion-dollar scale.”
We’ll have to wait and watch whether ILOs become a useful asset class in the actual world. ILOs have the potential to flourish based on the scale of the market they’re targeting and the excellent product-market fit they provide. And if they do, it will be a wonderful example of really effective blockchain integration—one that demonstrates that the technology isn’t a solution in search of a problem, but rather a highly efficient tool to usher in the new age of conventional banking.
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