BAGEY: Building A Digital-Native Fund At Baillie Gifford

A digital-native fund is more than a conventional fund represented by a token. It is designed from the outset to operate on digital rails. Its units are issued and transferred on-chain, investors hold them in digital wallets, and the product can ultimately integrate with other blockchain-based financial services.

That distinction is central to the Enhanced Yield Fund (BAGEY), Baillie Gifford's new tokenised fund. Baillie Gifford has not simply wrapped an existing fund in a token. It has built a UK-authorised short-duration bond fund whose units are issued natively on Ethereum and Solana, with BNY's digital transfer agency maintaining the register of ownership on-chain. The ambition is to offer a product that is "the same, but better", combining the investment characteristics and regulatory protections of a conventional fund with the speed, transparency and programmability of a digital asset.

This case study draws on SRI interviews with members of the Baillie Gifford team behind BAGEY.

Why Baillie Gifford could lead

Baillie Gifford is a long-established private partnership, known for its patient investment style and its preference on qualitative company research over short-term metrics. At first glance, it does not fit the stereotype of a fintech innovator, but its heritage offers a strong platform from which to launch a digital asset at the cutting edge of regulated investment funds.

Ownership

The firm is an unlimited liability partnership whose partners work in the business. With no need to answer to external shareholders, the management committee approved BAGEY's business case based on its strategic potential, client demand and the organisational learning opportunity it represented. Its KPIs assume a flywheel: assets build first, and economics follow.

Investment DNA

As an investment manager, Baillie Gifford has a long history of backing new technology early and with high conviction, from Amazon to Tesla and SpaceX. With blockchain promising to transform Baillie Gifford's own industry, it was only logical to apply its investment thesis to its own business strategy and take active steps to be at the forefront of that transformation.

A start-up inside an established firm

The digital assets team is set up to be focussed and nimble, including both a DeFi specialist, a client director with product development expertise in traditional finance and a client manager with significant fixed income expertise. This allows it to act much more like a start-up than a traditional project team. It engaged constantly with prospective clients and used a product pilot for operational learning, not revenue.-----

The client opportunity: a step out of cash

The Baillie Gifford Enhanced Yield Fund is aimed first at customers who already understand and use digital assets: digital-native family offices, foundations and protocol treasuries, and DeFi participants. Many hold large stablecoin balances, and the yield available to them on-chain is often volatile and correlated with the crypto market.

In conventional treasury practice, a short-duration bond fund is the standard step out of cash: modestly more yield in exchange for limited credit and duration risk. BAGEY offers this product to an on-chain treasurer without requiring them to return to the traditional financial system. Investors can subscribe in USDC, hold a regulated token, and redeem back to USDC.

However, the philosophy behind BAGEY is "the same but better". It therefore incorporates features beyond those of a traditional fund, including same-day liquidity, secondary market trading and, in the future, collateral eligibility and ultimately programmability.

A portfolio built around the customer

The investment strategy has been developed around the intended use cases of the fund's target customers, offering a combination of attractive yield, high quality assets that underpin its future potential as a collateral instrument and strong liquidity to match the mobility of much on-chain capital.

The fund is dollar-denominated and benchmarked 50/50 against short-dated US Treasuries and corporates. Duration is capped at three years; at the time of interview, it was about two, against a benchmark of 1.7. Up to half the fund can sit in high yield or emerging markets, with nothing rated below single B. Average credit quality is BBB.

Liquidity comes before maximum yield. On-chain capital moves in and out quickly, so holdings are concentrated in large, well-covered issuers that can normally be sold within a day. Active management adds yield where Baillie Gifford has an edge, for example in emerging-market sovereigns where its local access and currency views both contribute to investment returns. The units accumulate income rather than distributing it, because clients asked for simplicity.

Same but better: the product roadmap

BAGEY is designed to meet an investment need that exists today. However, the bigger prize is to demonstrate what "the same but better" means in practice. As such, potential customers well outside its immediate target group are watching with interest, including defined-contribution schemes, private banks and investment advisers.

Settlement is the first area of improvement. Investors subscribing or redeeming in USDC can obtain same-day value, compared with the two days required by traditional processes, because both the cash leg and the asset leg of the transaction settle on-chain. This is a real improvement, but it also illustrates how real-world regulation and operating necessities constrain the technology. Subscribing clients must submit orders through the fund portal, and these must be reconciled against stablecoin receipts before the coins are converted to fiat and made available in the fund's investment account. As a result, same-day value on subscriptions is subject to an 8am cut-off. Same-day redemptions are supported by a redemption facility with aggregate headroom capped at 10% of fund value under the FCA's COLL rules.

However, because the fund's books and records are maintained directly on-chain, primary market dealing is not the only option for investors.

Units can also change hands in the secondary market, traded over the counter between pre-authorised wallets. Allow-lists of authorised holders are maintained in the token-mint's smart contracts, making approval an intrinsic part of the dealing process. Prices quoted by market makers are supported by updates to the fund's indicative Net Asset Value, published on-chain every 15 minutes. Secondary market transferability provides more than a convenient alternative way to deal. Together with the legal status of the digital record defined in the fund's prospectus, it provides the basis for Baillie Gifford's ambition for the fund to be used as collateral, which in turn will mean it can fulfil a much broader role in treasury management than a static source of yield.

The evolution of the wallet

Although BAGEY has been a "digital native" fund from inception, the expectations of what this entails are growing continually, and this evolution is a key input to BAGEY's product roadmap. The wallet strategy illustrates the journey.

At launch, BAGEY works only with custodial wallets from established providers. This is driven primarily by the need to perform KYC checks on all token holders, a process carried out by BNY, Baillie Gifford's operating partner, and enforced through the token-mint contract's allow lists.

The long-term ambition is self-custody, first for institutions and later, perhaps, even for individuals. Each of these would pose additional operational and risk challenges, addressing which will require the continued evolution of technology, regulation and market practice. The ultimate vision, in which retail orders can be accepted on the basis of privacy-preserving identity credentials, would depend on market-wide adoption of an identity management scheme that is not within Baillie Gifford's ability to develop alone.

The same staged approach applies to composability. The ability to pledge units as collateral is due to launch next year, restricted to custodial wallets. Longer term, Baillie Gifford envisages lending through smart contracts on protocols such as Kamino or Aave is envisaged, subject to FCA agreement. Again, achieving the long-term vision may depend on innovations in market practice and law more than technology. For example, the legal ownership status of collateral is usually governed by a contract between the two counterparties. But, what is the status of assets pledged to a protocol-maintained collateral pool?

Delivery and the operating model

BAGEY went from leadership approval to live product in under twelve months, which is fast for any financial institution. It was made possible by strong senior sponsorship, clear ownership and a small cross-functional team. Baillie Gifford's partnership with BNY was also important. BNY built the digital transfer agency, digital custody, on-chain data services, stablecoin conversion through Circle and gas-fee management functionality, on top of its existing fund accounting and custody platforms. For BNY, the project seeded a strategic product capability, built around a live client that was itself actively engaged with both regulators and users, and one it is now offering to other managers.

The resulting model is a hybrid. At its core, the fund uses conventional tools for portfolio management, asset custody, fund accounting and risk management. Around this core sits a digital layer supporting on-chain issuance, allowlists, transfer agency and stablecoin management. Working with this new layer required Baillie Gifford's operations and risk management teams to design, operate and oversee new processes. Naturally, in doing so, they surfaced problems that only live operation can reveal:

• Dust: Unsolicited tokens from non-allowlisted wallets land in the fund's custody wallets but cannot be accepted, so they need manual handling.
• Gas: A regulated fund cannot hold crypto, so someone else has to pay network fees. BNY is building that service.
• Timing: Stablecoin conversion and screening are still required between receipt and dealing, adding delay to when subscriptions can be credited to investors.

How the market evolves

Baillie Gifford's commercial thesis is that liquidity in a market that trades 24/7 will concentrate around a few default providers of yield-bearing alternatives to cash, and it intends to be one of them.

In the very long term, the nature of fund management itself may change. If securities and other financial instruments are issued natively on-chain, and self-custodial wallets and vaults are widely adopted, managers may increasingly apply their strategies directly to client assets rather than through collective vehicles. Anticipating and leading such developments will be key for all financial institutions. Paradoxically, the traits usually read as conservatism - patient ownership, small steps, sustained engagement with the regulator - may be what keep Baillie Gifford ahead of the game.

Disclaimer & Members

Solana Research Institute 2026
The Solana Research Institute is an independent, member-owned association. The opinions expressed in this publication are solely those of the author and do not reflect the views of the members of the Solana Research Institute. In addition, the opinions expressed in this Guide are for informational purposes only and do not constitute financial, investment, strategic or legal advice. Discussion of asset performance is based on historical data which does not guarantee future results. Investing in any of the assets mentioned in this Guide involves risk, including the potential loss of principal. You should conduct your own due diligence or consult a professional advisor before making any investment decision.

While the ideas in this report were formulated in conversation with SRI members, they are the views of the SRI alone and do not necessarily reflect the opinion of any of the members.