How blockchain technology is democratising one of the most lucrative, and exclusive, corners of the investment world.
A Market Poised for Transformation
The intersection of blockchain technology and alternative investments continues to expand into previously inaccessible corners of finance. Among the most promising frontiers is litigation finance, a multi-billion dollar asset class that has historically been the exclusive preserve of hedge funds, institutional investors, and the ultra-wealthy. Now, as tokenisation technology matures and regulatory frameworks become clearer, the door is opening for broader participation in this high-return investment category.
As Jesse Knutson, head of operations at Bitfinex Securities, recently observed in Crowdfund Insider’s year-end review:
“Tokenization can open up regulated access to investment opportunities like micro financing bonds, litigation finance products, or Bitcoin hashrate contracts, assets that are not available on traditional markets.”
— Jesse Knutson, Head of Operations, Bitfinex Securities
This statement underscores a significant shift in how alternative investments may be structured and distributed in the coming years. Bitfinex Securities has stated that it manages more than US$250 million in assets across several listings and that it is ‘preparing experiments with litigation finance and other alternative assets’, signalling that tokenisation of litigation-finance exposure is moving from theory toward implementation.
Understanding Litigation Finance
Litigation finance, also known as legal finance or third-party litigation funding, involves investors providing capital to plaintiffs or law firms to pursue legal claims in exchange for a share of any eventual settlement or judgment. The investment is typically non-recourse, meaning if the case is unsuccessful, investors lose their capital, but successful outcomes can generate substantial returns, often ranging from 15% to 30% annually, with some cases yielding significantly higher multiples.
The global litigation funding market has experienced remarkable growth. Market-sizing estimates vary by methodology, but recent industry reports generally place the global litigation-funding investment market in the low-to-mid US$20 billions in 2024/2025, with forecasts in the US$50+ billions by the mid-2030s. This expansion reflects both rising legal costs worldwide and increasing acceptance of third-party funding across major jurisdictions.
What makes litigation finance particularly attractive as an investment is its relatively low correlation with traditional financial markets. While litigation-finance returns are often presented as relatively low-correlation, performance can still be indirectly affected by macro conditions (for example, shifts in settlement behaviour, duration of proceedings, enforceability/collection risk, and funder capital availability). This characteristic has drawn significant interest from institutional investors seeking portfolio diversification.
Traditional Barriers to Entry
Despite its attractive return profile, litigation finance has remained inaccessible to most investors for several structural reasons:
High minimum investments: Traditional litigation finance funds typically require minimum investments ranging from $500,000 to several million dollars, effectively excluding all but the wealthiest individuals and institutions.
Accredited investor requirements: In the United States, many private offerings of litigation-finance interests rely on exemptions that limit sales to accredited investors, as defined by the SEC (income/net-worth and certain professional criteria).
Illiquidity: Litigation can take years to resolve, and traditional fund structures typically lock up capital for extended periods with limited or no ability to exit before case resolution.
Information asymmetry: Evaluating litigation investments requires specialised legal expertise, creating information barriers that disadvantage individual investors.
How Tokenisation Changes the Equation
Tokenisation – the process of representing ownership rights as digital tokens on a blockchain – addresses many of these structural barriers while introducing new possibilities for the litigation finance market.
Fractional Ownership and Lower Minimums
Perhaps the most significant impact of tokenisation is the ability to divide litigation investments into smaller, affordable units. Tokenisation can enable smaller denominations, but minimum investment sizes and eligibility depend on the offering structure and securities rules. For example, Republic’s Apothio Initial Litigation Offering was conducted under Regulation Crowdfunding with a US$100 minimum and included transfer restrictions (including a one-year resale limitation). Companies like Liti Capital, a Swiss private equity firm specialising in litigation funding, have already demonstrated this model by tokenising equity shares in their company, allowing broader investor participation through blockchain tokens.
Enhanced Liquidity
Traditional litigation investments are notoriously illiquid – once committed, capital is typically locked until case resolution. Tokenisation creates the possibility of secondary market trading, allowing investors potentially to sell their positions before case outcomes are determined. Secondary transfers of tokenised interests may shorten settlement between eligible participants, but they do not shorten the underlying litigation timeline and may be constrained by platform rules and securities transfer restrictions. In an interview, Knutson contrasted on-chain settlement (‘…happens instantly’) with conventional settlement cycles.
Transparency and Smart Contract Automation
Blockchains can provide an auditable record of token ownership and transfers, but disclosure of case merits, privileged communications and settlement terms will often remain off-chain and confidential. Smart contracts may automate payment mechanics, but typically still require reliable off-chain inputs (e.g., confirmation of settlement and net proceeds). This automation is particularly valuable in litigation finance, where payout structures can be complex and contingent on multiple variables.
Portfolio Diversification
Lower investment minimums enable individual investors to diversify across multiple cases or funds, reducing the risk of total loss from any single unsuccessful litigation. This mirrors the approach taken by sophisticated institutional litigation funders but makes it accessible to retail participants.
Early Movers and Emerging Models
Several pioneering projects have begun exploring the tokenisation of litigation finance, each with distinct approaches:
Liti Capital has tokenised equity shares in its litigation funding company, distributing dividends to token holders when portfolio cases are won. The Swiss company has positioned itself as bringing “private equity investment opportunities directly to any investor through blockchain technology.”
LawCoin completed what it described as the “world’s first tokenization of litigation finance investment” in partnership with ConsenSys, tokenising ownership interests in a litigation finance fund structure.
Republic’s Initial Litigation Offerings (ILOs) represent a crowdfunding-style approach, allowing investors to purchase tokens representing shares in specific litigation claims under Regulation Crowdfunding, potentially opening participation to non-accredited investors.
Bitfinex Securities’ indication that it is “preparing experiments with litigation finance and other alternative assets” suggests that established, regulated tokenisation platforms are now seriously evaluating this asset class. The platform’s success with tokenised bonds, Treasury bills, and mining contracts provides a template for how litigation finance products might be structured and offered.
Regulatory Considerations and Challenges
The tokenisation of litigation finance must navigate complex regulatory terrain spanning both securities law and legal profession ethics.
Securities Classification
Tokenised litigation investments will likely be classified as securities in most jurisdictions, requiring registration or exemption under applicable securities laws. Platforms like Bitfinex Securities operate under regulated frameworks – in Kazakhstan’s Astana International Financial Centre and El Salvador’s Digital Assets regime – that provide legal clarity for tokenised securities offerings.
Legal Ethics and Champerty
Historically, many jurisdictions prohibited “champerty” – the practice of third parties financing litigation for profit. While these restrictions have largely been relaxed in the United States, United Kingdom, Australia (most European jurisdictions do not have the same restrictions), some jurisdictions maintain limitations that could affect tokenised litigation products. Additionally, rules around lawyer-client privilege and the potential influence of funders on litigation strategy require careful structuring.
Disclosure Requirements
Disclosure obligations are driven by procedural rules (not the token itself), and several arbitral institutions now require notice of third-party funding (e.g., ICSID Rule 14, HKIAC Article 44, and SIAC Rule 38). Tokenisation may improve internal recordkeeping for permitted participants but does not automatically make funding arrangements public.
Investment Risks and Considerations
While tokenisation can democratise access to litigation finance, it does not eliminate – and may in some cases amplify – the inherent risks of this asset class:
Binary outcomes: Litigation results are inherently uncertain. Cases can be dismissed, lost at trial, or result in unenforceable judgments, leading to complete loss of invested capital.
Extended timelines: Legal proceedings often take years to resolve, with appeals potentially extending timelines further. Even with secondary market liquidity, token prices may fluctuate significantly based on perceived case progress.
Valuation challenges: Unlike publicly traded securities with established market prices, litigation investments are difficult to value, potentially leading to pricing inefficiencies or manipulation in secondary markets.
Platform and technology risks: As with any blockchain-based investment, tokenised litigation finance products carry risks related to smart contract vulnerabilities, platform security, and regulatory changes affecting token tradability.
Looking Ahead: 2026 and Beyond
Knutson’s forward-looking statement captures the momentum building in this space:
“We expect this momentum to continue into 2026, with more alternative assets, innovative Bitcoin-mining backed fixed income products, tokenized ETFs, and our first tokenized equity offerings. We look forward to continuing to open up capital raising and investment opportunities for those that have long been underserved by the traditional financial system.”
— Jesse Knutson, Bitfinex Securities
Real-world asset (RWA) tokenisation has grown into the tens of billions of dollars (methodologies differ on what is included). Major financial institutions including BlackRock, JPMorgan, and Franklin Templeton have moved beyond experimentation to production-scale deployment of tokenised products. This institutional validation, combined with improving regulatory clarity, suggests that tokenised litigation finance may transition from niche experimentation to mainstream availability within the next few years.
For investors, the tokenisation of litigation finance represents both an opportunity and a responsibility. The ability to access uncorrelated returns previously available only to institutional players is genuinely novel. However, as with any alternative investment, careful due diligence, portfolio allocation appropriate to individual risk tolerance, and understanding of the underlying asset class remain essential.
As the legal and financial industries continue to converge around blockchain technology, tokenised litigation finance may prove to be one of the more compelling use cases for bringing alternative investments to a broader audience – fulfilling the promise of technology that “opens up capital raising and investment opportunities for those that have long been underserved by the traditional financial system.”
Disclaimer: This article is for informational purposes only and does not constitute investment advice, legal advice, or a solicitation to buy or sell any securities. Alternative investments, including litigation finance, involve significant risks including the potential loss of principal. Past performance is not indicative of future results. Readers should conduct their own research and consult with qualified professionals before making investment decisions.
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