Private credit and litigation finance are two of the most institutionally relevant alternative-asset categories that have not yet been brought to a regulated tokenisation framework. Private credit has grown from a niche asset class to USD 1.7 trillion globally (Preqin Q1 2026), second only to private equity in alternative AUM. Litigation finance has matured from speculative ad-hoc deals to a structured asset class run by institutional managers — Burford Capital (listed), Omni Bridgeway (listed Australia), Therium (private), Augusta Ventures (private).

For both, tokenisation under VARA Category 1 ARVA solves four structural problems: high investment minimums (typically USD 1-5M tickets), poor secondary liquidity, opaque reporting, and limited geographic access. Tokenisation enables fractional access from USD 5,000-50,000 tickets, on-chain transferability, transparent reporting through DLT, and global qualified-investor distribution.

Private credit tokenisation.

The structure.

A typical structure:

  1. Originator (an institutional private credit manager with existing fund and pipeline) commits to launch a tokenised tranche.
  2. UAE Issuer SPV (DMCC) holds the VARA Category 1 licence.
  3. Lending Vehicle: typically a Cayman or DIFC fund vehicle holds the underlying loans. Issuer SPV holds a participation interest in the lending vehicle.
  4. Token issuance: ARVA tokens representing pro-rata interest in the tranche (senior, mezzanine, or equity layer).
  5. Cash flow: borrower interest payments → lending vehicle → issuer SPV → token holders quarterly. Principal repayments → token redemption at par.

The tranche structure.

A USD 100M direct-lending fund can be tokenised across three tranches:

  • Senior tranche (USD 70M, 8% yield): first claim on cash flows; first claim on recovery in default.
  • Mezzanine tranche (USD 20M, 12% yield): second claim; absorbs first losses after equity.
  • Equity tranche (USD 10M, target 18-20% yield): first-loss; receives residual after senior and mezz.

Each tranche is a separate token series. Investors choose risk-return based on tranche subscription.

Default mechanics.

The whitepaper must disclose:

  • Default trigger definitions (typically interest payment failure for 30/60/90 days, or covenant breach).
  • Recovery procedure — workout, restructuring, enforcement of collateral.
  • Loss allocation — losses absorbed equity first, then mezzanine, then senior.
  • Reserve fund mechanics — typically 2-5% of fund size held as a default reserve.

Litigation finance tokenisation.

The mechanism.

A litigation finance fund advances capital to a plaintiff or law firm to fund litigation costs in exchange for a share of the award if the case wins. Returns are uncorrelated with broader market returns (case outcomes don't depend on equity markets). Typical case profile:

  • Average ticket: USD 5-20M advance per case
  • Case duration: 2-4 years
  • Win rate: 60-70% (high-quality portfolio)
  • Return on capital deployed on wins: 2.5x-4x typical
  • Portfolio IRR target: 18-25%

The token structure.

A litigation finance fund can be tokenised at either the portfolio level (token holders share in the aggregate portfolio outcome) or the case level (each case is its own token series — rare, used for marquee cases). Portfolio-level is the standard:

  1. Portfolio Manager selects 15-30 cases (typically commercial litigation, patent infringement, IP disputes, antitrust, international arbitration).
  2. Issuer SPV commits capital to the case-funding entity.
  3. Token holders share pro-rata in the realised portfolio returns over the case life cycle.
  4. Reporting: quarterly NAV statements based on mark-to-fair-value methodology (cases recategorised through "Stage 1: Pre-trial", "Stage 2: Trial verdict in favour", "Stage 3: Final judgement / settlement", "Stage 4: Recovery received").

The qualified-investor restriction.

Litigation finance tokens are typically restricted to qualified investors (institutional or HNW meeting professional client thresholds). VARA Cat 1 marketing perimeter and the underlying disclosure standards align with this — the rulebook permits marketing to qualified investors with standard ARVA disclosure plus the additional litigation-specific risk factors (case loss, settlement below funding cost, regulatory disruption to the litigation-finance industry).

VARA Cat 1 requirements (credit-backed).

  • Reserve and asset backing: tokens must be backed 1:1 by the underlying loan or litigation-finance commitments.
  • Independent valuation: quarterly NAV by an independent administrator using mark-to-fair-value methodology.
  • Whitepaper: detailed disclosure of portfolio composition, credit underwriting standards, default mechanics, loss waterfall.
  • Manager track record: documented historical performance and team credentials.
  • Annual audit by Big Four or equivalent.
  • Marketing perimeter: qualified investors only unless retail authorisation separately obtained.

Worked example: USD 100M direct-lending tranche tokenisation.

  1. Existing private credit manager (managing USD 2B+ in private credit funds) wants to launch a tokenised USD 100M tranche.
  2. DMCC Issuer SPV established; VARA Cat 1 ARVA issuance licence obtained.
  3. Lending Vehicle established in Cayman as standard private credit fund.
  4. Issuer SPV subscribes to a USD 100M senior tranche participation in the Lending Vehicle.
  5. Issuer SPV issues 100,000,000 ARVA tokens at USD 1.00 each, raising USD 100M from qualified investors.
  6. Lending Vehicle deploys capital into 15-20 underlying loans (typical direct-lending portfolio).
  7. Quarterly: borrower interest payments flow to Lending Vehicle → Issuer SPV → token holders. Target 8% annual yield on senior tranche.
  8. Final maturity (4-5 years): principal repaid to token holders at par; outstanding tokens burned.

Conclusion.

Private credit and litigation finance are exceptionally well-suited to VARA Cat 1 ARVA tokenisation. Both asset classes have natural cash-flow waterfalls that map cleanly onto token distribution mechanics. The Cayman or DIFC lending vehicle plus Dubai-issuer SPV is the standard structure. Neo Legal supports private credit and litigation-finance managers across the full tokenisation pathway.