Episode Transcript:  

 Will stable coins be disrupting the real estate industry? Maybe we're gonna unpack the Genius Act and a little bit more on today's episode. Let's get ready to scale.

Hi guys. My name is Jeannette Friedrich. I'm the director of Investor Relations here at Blue Lake Capital, where we specialize in multi-family investments across the United States. Now imagine your next distribution or dividend from an investment coming in the form of a digital dollar instead of as an ACH or a wire.

Well, that future is looking like it could potentially be a lot closer than it ever has before. So before a jump into explaining what the Genius Act is, I wanna talk first about the simple basics of. Stable coins. So first of all, if you're not familiar with this cryptocurrency, it's something you might wanna actually brush up on because it may become a lot more prevalent than you anticipate.

So first of all, basically stable coins are a cryptocurrency token that are designed to hold constant value, which is usually the US dollar. So the best way to think about it is like this one token equals one US dollar. Now the top issuers of these types of coins are companies called Tether and another one called Circle.

And again, if you don't think that this wave is coming, I caution you to really take some time to understand it because this industry as of April, 2025, is already a market worth about 225. Billion dollars. So let me explain now why the Genius Act came about, and part of it is because of the tremendous amount of money that has already gone into this.

So first of all, the Genius Act was at a law that was actually signed into effect as of July 19th, 2025. So just last week. And what it does is it essentially creates a federal license for the payment of stable coin. Issuers and a very strict one-to-one reserve rule. So basically what this law does is it bans any form of yield or interest on these regulated coins now forcing them to operate a lot more like cash.

Now this is really interesting and I hope you're asking yourself why, because this is what really helps you underst. Stand, why this act was important and why this regulation was potentially important to people. So basically there's five reasons in my opinion as to why this law is not allowing any yield on this stable coin.

So first of all, it has to operate like cash. And so by having no yield on it, it keeps it operating in that digital cash lane and not starting to act like a securities or an investment. The second reason is it protects banks. It protects banks funding because essentially if this stable coin can act just like cash and is offering better interest rates than the banks are, what would stop people from taking all of their money out of banks and simply converting it into stable coin?

Not a lot. So it protects the bank's interest. The third reason is that it also helps protect consumers from a potential run. And what I'm talking about is that this is forcing the issuers to have to hold, uh, only cash and short-term treasuries. Uh, in the same amount, essentially as the coins that they have issued in the event that all of a sudden there is a run on these issuers and everybody tries to cash out at the same time, it ensures that there's that one-to-one backing and that it doesn't just completely crash and consumers are left empty handed.

Now, another reason that this is important is because it finally provides some oversight, some clear rules and disclosures about how these tokens are operating and that they are. Simply cash, essentially, uh, the same as cash and not investments. And then last but not least, the fifth biggest reason that I believe this, uh, rule was so strictly put into place is because it preserves the Fed's control.

The Fed ultimately has got to protect its own monetary policy, and the reality is stable coins could have been a very big threat to that. This instead finds a way to bridge those two worlds together and allow the Fed to remain in control. So now that you kind of understand what that means, the overall goal of this entire thing was that there was just not a lot of clarity at all for consumers or even for issuers on how stable coins could operate.

So this finally provides basically some guardrails for the function to be understood by both parties. Now when it comes to real estate, why should we care? Well, because there is some incentives to considering this. So first of all, rather you're a domestic investor, but especially if you're an international investor, uh, when people are trying to make these types of investments in real estate, you can lose several days and pay a lot of extra fees in wiring money over.

Technically, stablecoin could help actually eliminate that. Um, it can settle within minutes instead of days, and that actually helps make the transaction a lot smoother and a lot more affordable. In addition to that, this also would allow us to be able to leverage other types of technology like smart contracts that could actually, once the funds have reached the bank within seconds, it could actually help automate escrow release.

At closing, reducing significant legal cost as well as the drag time on those legal processes that have to go through as well as the holding cost. So it really helps to make the, uh, investment process a lot more efficient. And it's not just in theory, there's already some groups that are actually taking advantage of this.

So for example, there's a company called Real it, which is a Detroit based tokenization platform, and they actually have investments where they pay weekly to their investors in these tokens that are considered the equivalent of cash. There's also in Argentina, an apartment that actually will only allow their tenants to pay in the form of Tether, um, using Tether as the issuer and paying in those stable coins from Tether.

And they are collecting rent in real time and only in that way, which help. To reduce potential overdraft fees on checks that are bouncing, et cetera, et cetera, for those property owners. And last but not least, even large US banks, including Bank of America, have announced plans for coming up with their own stable coin.

And that's really a huge signal that that means this is very likely going to become mainstream. Now, that's not to say that it's all smooth sailing from here, because the reality is there's still a lot of barriers ahead for stablecoin. So first of all, there's an issue about fair value testing. So how do you really test the value of stablecoin when it's really a new currency or being utilized in a very new and different way?

So from an accounting territory, this is very uncharted, unsettled territory. Then in addition to that. It's simply not the way things have been done so. Typically, the way things have always been done is there's general partners and limited partners in real estate investments, and all of those subscription agreements contain information about how to wire funds, not a cryptocurrency address.

So that would be a a question too, is how quickly will the industry begin to adopt and integrate this type of technology and this new genius act into actual business? And then of course there's also the regulatory risk. So the act forbids yield on coins, so that can get a little bit hairy because if people are trying to start utilizing them in ways that are going to be creating dividends, uh, through investments that may be falling into a great area.

So what I recommend for you if you are a real estate investor, is to actually have a conversation with your sponsor about this and find out what kind of roadmap they have, uh, in play for digital payments and if they're considering ever switching into or transitioning into this type of currency. In addition, I would also suggest that as this becomes more popular, you may wanna review, review your offering memorandums and any subscription agreements that you sign accordingly to.

See if there's any language about distributions being sent out in alternative forms, indicating potentially ending up getting a distribution as a digital currency instead of via a CH. Good old cash money. And if you happen to be an active investor and you're self-managing your own assets, you might wanna give this a test run and see how it works on your own property.

So the big takeaway for all of this is that the Genius Act is not going to force real estate capital onto the blockchain, but it does have a lot of advantages worth taking into consideration. And as banking giants like Bank of America and others begin to actually tokenize their platforms, this may simply be the wave of the future, and you either get on board with it.

Or you get left behind. So I'm curious to know, would you accept your next distribution or dividend in the form of a digital dollar? Let me know in the comments. In the meantime, I hope you guys found this helpful and we will see you on the next episode. Ready to Scale is brought to you by Blue Lake Capital, where we hunt down the best multifamily investment opportunities that we can find and invite investors to join in with us.

We target class B value add multifamily properties across the Sunbelt. Our CEO Ellie Perlman, invest a substantial amount of capital into every deal. This means our interests are aligned with yours. If you're an accredited investor looking to expand your portfolio and diversify sponsors, be sure to visit us@bluelakecapital.com.