Item 1. Financial Statements

135K characters. Original on sec.gov · Markdown

Item 1. Financial Statements

Coinbase Global, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except par value data)

(unaudited)


	March 31,		December 31,
	2022		2021
Assets
Current assets:
Cash and cash equivalents	$	6,116,388	$	7,123,478
Restricted cash	27,111		30,951
Customer custodial funds	10,023,385		10,526,233
USDC	179,885		100,096
Accounts and loans receivable, net of allowance	346,048		396,025
Income tax receivable	56,767		61,231
Prepaid expenses and other current assets	191,068		135,849
Total current assets	16,940,652		18,373,863

Crypto assets held	1,333,333		988,193
Lease right-of-use assets	91,431		98,385
Property and equipment, net	65,861		59,230
Goodwill	1,080,176		625,758
Intangible assets, net	219,128		176,689
Other non-current assets	1,164,613		952,307

Total assets	$	20,895,194	$	21,274,425

Liabilities, Convertible Preferred Stock and Stockholders’ Equity
Current liabilities:
Custodial funds due to customers	$	9,742,961	$	10,480,612
Accounts payable	12,650		39,833
Accrued expenses and other current liabilities	647,960		439,559
Crypto asset borrowings	485,564		426,665
Lease liabilities, current	32,688		32,366

Total current liabilities	10,921,823		11,419,035

Lease liabilities, non-current	66,425		74,078


Long-term debt	3,386,865		3,384,795
Other non-current liabilities	23,988		14,828
Total liabilities	14,399,101		14,892,736

Commitments and contingencies (Note 16)


Stockholders’ equity:
Class A common stock, $0.00001 par value; 10,000,000 shares authorized at March 31, 2022 and December 31, 2021; 173,015 and 168,807 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	2		2
Class B common stock, $0.00001 par value; 500,000 shares authorized at March 31, 2022 and December 31, 2021; 48,310 and 48,310 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively	—		—

Additional paid-in capital	2,579,216		2,034,658
Accumulated other comprehensive loss	(3,890)		(3,395)
Retained earnings	3,920,765		4,350,424
Total stockholders’ equity	6,496,093		6,381,689
Total liabilities, convertible preferred stock and stockholders’ equity	$	20,895,194	$	21,274,425

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coinbase Global, Inc.

Condensed Consolidated Statements of Operations

(In thousands, except per share data)

(unaudited)


	Three Months Ended March 31,
	2022		2021








Revenue:
Net revenue	$	1,164,891	$	1,596,981
Other revenue	1,545		204,131
Total revenue	1,166,436		1,801,112
Operating expenses:
Transaction expense	277,826		234,066
Technology and development	570,664		184,225
Sales and marketing	200,204		117,990
General and administrative	413,578		121,231

Other operating expense, net	258,627		155,887


Total operating expenses	1,720,899		813,399
Operating (loss) income	(554,463)		987,713
Interest expense	22,138		—
Other expense (income), net	32,844		(8,953)

(Loss) income before income taxes	(609,445)		996,666

(Benefit from) provision for income taxes	(179,786)		225,203

Net (loss) income	$	(429,659)	$	771,463

Net (loss) income attributable to common stockholders:
Basic	$	(429,659)	$	301,896
Diluted	$	(429,659)	$	387,719

Net (loss) income per share attributable to common stockholders:
Basic	$	(1.98)	$	3.80
Diluted	$	(1.98)	$	3.05

Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders:
Basic	217,472		79,373
Diluted	217,472		126,996

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coinbase Global, Inc.

Condensed Consolidated Statements of Comprehensive (Loss) Income

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Net (loss) income	$	(429,659)	$	771,463

Other comprehensive loss:
Translation adjustment, net of tax	(495)		(4,138)

Comprehensive (loss) income	$	(430,154)	$	767,325

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coinbase Global, Inc.

Condensed Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity

(In thousands)

(unaudited)



	Convertible Preferred Stock						Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)		Retained Earnings
		Common Stock
	Shares	Amount		Shares	Amount				Total
Balance at January 1, 2022	—	$	—	217,117	$	2	$	2,034,658	$	(3,395)	$	4,350,424	$	6,381,689
Issuance of common stock upon exercise of stock options, net of repurchases	—	—		1,125	—		18,496		—		—		18,496
Stock-based compensation expense	—	—		—	—		353,538		—		—		353,538
Issuance of equity instruments as consideration for business combinations	—	—		1,663	—		314,356		—		—		314,356

Issuance of common stock upon settlement of Restricted Stock Units (“RSUs”) and restricted common stock, net of shares withheld	—	—		1,420	—		(141,832)		—		—		(141,832)

Comprehensive loss	—	—		—	—		—		(495)		—		(495)
Net loss	—	—		—	—		—		—		(429,659)		(429,659)

Balance at March 31, 2022	—	$	—	221,325	$	2	$	2,579,216	$	(3,890)	$	3,920,765	$	6,496,093

Balance at January 1, 2021	112,878	$	562,467	73,108	$	—	$	231,024	$	6,256	$	726,304	$	963,584
Issuance of common stock upon exercise of stock options, net of repurchases	—	—		7,910	—		39,580		—		—		39,580
Stock-based compensation expense	—	—		—	—		105,376		—		—		105,376
Issuance of equity instruments as consideration in business combination	—	—		3,584	—		417,680		—		—		417,680
Conversion of preferred stock	(471)	(10,430)		471	—		10,430		—		—		10,430
Issuance of shares from exercise of warrants	—	—		412	—		433		—		—		433
Issuance of common stock upon settlement of RSUs	—	—		181	—		—		—		—		—
Comprehensive loss	—	—		—	—		—		(4,138)		—		(4,138)
Net income	—	—		—	—		—		—		771,463		771,463

Balance at March 31, 2021	112,407	$	552,037	85,666	$	—	$	804,523	$	2,118	$	1,497,767	$	2,304,408

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coinbase Global, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from operating activities
Net (loss) income	$	(429,659)	$	771,463
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities
Depreciation and amortization	31,580		10,922
Impairment expense	229,129		841
Stock-based compensation expense	352,141		104,628
Provision for transaction losses and doubtful accounts	(4,134)		2,503


Loss on disposal of property and equipment	—		11
Deferred income taxes	(183,183)		36
Unrealized loss (gain) on foreign exchange	7,389		(2,869)
Non-cash lease expense	7,748		9,050

Realized gain on crypto assets	(21,241)		(32,769)
Crypto assets received as revenue	(179,743)		(180,109)
Crypto asset payments for expenses	167,954		154,989
Fair value loss (gain) on derivatives	3,452		(2,800)
Amortization of debt discount and issuance costs	2,097		—
Gain on investments	(607)		(9,257)
Changes in operating assets and liabilities:
USDC	(97,965)		(64,064)
Accounts and loans receivable	45,145		(11,976)

Income taxes, net	3,862		238,486

Other current and non-current assets	(49,083)		(34,587)
Custodial funds due to customers	(738,758)		2,355,138
Accounts payable	(28,398)		614

Lease liabilities	(2,816)		(8,568)
Other current and non-current liabilities	54,976		110,083



Net cash (used in) provided by operating activities	(830,114)		3,411,765
Cash flows from investing activities
Purchase of property and equipment	(1,199)		(18)
Proceeds from sale of property and equipment	—		48
Capitalized internal-use software development costs	(9,082)		(4,388)
Business combination, net of cash acquired	(186,150)		(16,525)
Purchase of investments	(25,771)		(9,203)


Proceeds from settlement of investments	766		—
Purchase of crypto assets held	(871,152)		(553,012)
Disposal of crypto assets held	400,858		545,188
Loans originated	(100,625)		—
Proceeds from repayment of loans	100,764		—
Net cash used in investing activities	(691,591)		(37,910)

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coinbase Global, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(unaudited)


	Three Months Ended March 31,
	2022		2021
Cash flows from financing activities

Issuance of common stock upon exercise of stock options, net of repurchases	16,891		59,387
Taxes paid related to net share settlement of equity awards	(141,832)		—
Proceeds received under the Employee Stock Purchase Plan	8,975		—


Issuance of shares from exercise of warrants	—		433



Proceeds from short-term borrowings	149,400		—
Repayment of short-term borrowings	(20,000)		—
Net cash provided by financing activities	13,434		59,820

Net (decrease) increase in cash, cash equivalents, and restricted cash	(1,508,271)		3,433,675

Effect of exchange rates on cash	(5,507)		16,231

Cash, cash equivalents, and restricted cash, beginning of period	17,680,662		4,856,029

Cash, cash equivalents, and restricted cash, end of period	$	16,166,884	$	8,305,935

Cash, cash equivalents, and restricted cash consisted of the following:
Cash and cash equivalents	$	6,116,388	$	1,983,318
Restricted cash	27,111		30,841
Customer custodial funds	10,023,385		6,291,776
Total cash, cash equivalents, and restricted cash	$	16,166,884	$	8,305,935

Supplemental disclosure of cash flow information
Cash paid during the period for interest	$	190	$	—
Cash paid during the period for income taxes	$	1,980	$	—
Operating cash outflows for amounts included in the measurement of operating lease liabilities	$	3,771	$	7,490

Supplemental schedule of non-cash investing and financing activities
Unsettled purchases of property and equipment	$	234	$	—
Right-of-use assets obtained in exchange for operating lease obligations	$	1,050	$	13,072
Non-cash consideration paid for business combinations	$	324,925	$	—
Purchase of crypto assets and investments with non-cash consideration	$	12,875	$	885

Crypto assets borrowed	$	249,764	$	9,158
Crypto assets borrowed repaid with crypto assets	$	317,039	$	16,437

The accompanying notes are an integral part of these condensed consolidated financial statements.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

1. NATURE OF OPERATIONS

Coinbase, Inc. was founded in 2012. In April 2014, in connection with a corporate reorganization, Coinbase, Inc. became a wholly-owned subsidiary of Coinbase Global, Inc. (together with its consolidated subsidiaries, the “Company”).

The Company operates globally and is a leading provider of end-to-end financial infrastructure and technology for the cryptoeconomy. The Company offers retail users the primary financial account for the cryptoeconomy, institutions a state of the art marketplace with a deep pool of liquidity for transacting in crypto assets, and ecosystem partners technology and services that enable them to build crypto-based applications and securely accept crypto assets as payment.

The Company is a remote-first company. Accordingly, the Company does not maintain a headquarters.

On April 14, 2021, the Company completed the direct listing of its Class A common stock on the Nasdaq Global Select Market (the “Direct Listing”).

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation and principles of consolidation

The accompanying condensed consolidated financial statements of the Company are unaudited. These unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”), on the same basis as the audited consolidated financial statements, and in management’s opinion, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair statement of the Company’s condensed consolidated balance sheet as of March 31, 2022, condensed consolidated results of operations for the three months ended March 31, 2022 and March 31, 2021, and condensed consolidated statements of cash flows for the three months ended March 31, 2022 and March 31, 2021. The unaudited condensed consolidated results of operations for the three months ended March 31, 2022 and March 31, 2021 are not necessarily indicative of the results to be expected for the full year or any other period.

These condensed consolidated financial statements and accompanying notes should be read in conjunction with the audited consolidated financial statements and notes included in the Company’s annual report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022 (the “Annual Report”).

These condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The Company’s subsidiaries are entities in which the Company holds, directly or indirectly, more than 50% of the voting rights or where it exercises control. Certain subsidiaries of the Company have a basis of presentation different from GAAP. For the purposes of these unaudited condensed consolidated financial statements, the basis of presentation of such subsidiaries is converted to GAAP. All intercompany accounts and transactions have been eliminated in consolidation.

There were no changes to the significant accounting policies or recent accounting pronouncements that were disclosed in Note 2. Summary of Significant Accounting Policies to the audited consolidated financial statements included in the Annual Report, other than as discussed below.

Reclassifications

Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported condensed consolidated net income.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Use of estimates

The preparation of the condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions in the Company’s condensed consolidated financial statements and notes thereto.

Significant estimates and assumptions include the determination of the recognition, measurement, and valuation of current and deferred income taxes; the fair value of stock-based awards issued; the useful lives of long-lived assets; the impairment of long-lived assets; the Company’s incremental borrowing rate; the fair value of assets acquired and liabilities assumed in business combinations, including contingent consideration arrangements; the fair value of derivatives and related hedges; the fair value of long-term debt; assessing the likelihood of adverse outcomes from claims and disputes; and loss provisions.

Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties. To the extent that there are material differences between these estimates and actual results, the Company’s condensed consolidated financial statements will be affected. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgments about the carrying values of assets and liabilities.

Concentration of credit risk

The Company’s Cash and cash equivalents, Restricted cash, Customer custodial funds, and Accounts and loans receivable are potentially subject to concentration of credit risk. Cash and cash equivalents, Restricted cash, and Customer custodial funds are placed with financial institutions which are of high credit quality. The Company invests Cash and cash equivalents, and Customer custodial accounts primarily in highly liquid, highly rated instruments which are uninsured. The Company may also have deposit balances with financial institutions which exceed the Federal Deposit Insurance Corporation insurance limit of $250,000. The Company also holds cash at crypto trading venues and performs a regular assessment of these crypto trading venues as part of its risk management process.

The Company held $179.9 million and $100.1 million of USD Coin (“USDC”) as of March 31, 2022 and December 31, 2021, respectively. The issuer has stated that underlying U.S. dollar denominated assets are held on behalf of USDC holders in U.S. regulated financial institutions.

As of March 31, 2022 and December 31, 2021, the Company had no customers who accounted for more than 10% of the Company’s Accounts and loans receivable. As of March 31, 2022 and December 31, 2021, the Company had no payment processors or bank partners representing more than 10% of Accounts and loans receivable.

During the three months ended March 31, 2022 and March 31, 2021, no customer accounted for more than 10% of total revenue.

Derivative contracts

Derivative contracts derive their value from underlying asset prices, other inputs or a combination of these factors. Derivative contracts are recognized as either assets or liabilities in the condensed consolidated balance sheets at fair value, with changes in fair value recognized in Other operating expense, net.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company enters into arrangements that result in obtaining the right to receive or obligation to deliver a fixed amount of crypto assets in the future. These are hybrid instruments, consisting of a debt host contract that is initially measured at the fair value of the underlying crypto assets and is subsequently carried at amortized cost, and an embedded forward feature based on the changes in the fair value of the underlying crypto asset. The embedded forward is bifurcated from the host contract, and is subsequently measured at fair value.

Derivatives designated as hedges

The Company applies hedge accounting to certain derivatives executed for risk management purposes. To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. The Company uses fair value hedges primarily to hedge the fair value exposure of crypto asset prices. For qualifying fair value hedges, the changes in the fair value of the derivative and the fair value of the hedged item, the crypto assets, are recognized in current-period earnings in Other operating expense, net in the condensed consolidated statements of operations. Derivative amounts affecting earnings are recognized in the same line item as the earnings effect of the hedged item.

Recent accounting pronouncements

Recently adopted accounting pronouncements

On October 28, 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 amends Accounting Standards Codification 805 (“ASC 805”) to require acquiring entities to apply Topic 606 - Revenue from Contracts with Customers to recognize and measure contract assets and contract liabilities in a business combination. The Company early adopted the standard on January 1, 2022. The adoption of the standard did not have a material impact on the Company’s condensed consolidated financial statements.

Accounting pronouncements pending adoption

On March 31, 2022, the SEC issued Staff Accounting Bulletin No. 121 (“SAB 121”). SAB 121 sets out interpretive guidance from the staff of the SEC regarding the accounting for obligations to safeguard crypto assets that an entity holds for its platform users. The guidance requires an entity to recognize a liability for the obligation to safeguard the users’ assets, and recognize an associated asset for the crypto assets held for users. Both the liability and asset should be measured initially and subsequently at the fair value of the crypto assets being safeguarded. The guidance also requires additional disclosures related to the nature and amount of crypto assets that the entity is responsible for holding for its platform users, with separate disclosure for each significant crypto asset, and the vulnerabilities the entity has due to any concentration in such activities. The guidance in SAB 121 is effective for interim or annual periods ending after June 15, 2022, with retrospective application as of the beginning of the fiscal year to which the interim or annual period relates. As of March 31, 2022, the Company had approximately $246 billion of customer crypto assets. The Company is currently evaluating the impact of adopting the guidance. The amount reported upon adoption may be materially different than the amount as of March 31, 2022 due to fluctuations in crypto asset market prices and the notional amount of customer crypto assets held on the Company’s platform.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

3. ACQUISITIONS

2022 Acquisitions

Unbound Security, Inc.

On January 4, 2022, the Company completed the acquisition of Unbound Security, Inc. (“Unbound”) by acquiring all issued and outstanding shares of capital stock and stock options of Unbound. Unbound is a pioneer in a number of cryptographic security technologies, which the Company believes will play a key role in the Company’s product and security roadmap.

In accordance with ASC 805, Business Combinations, the acquisition was accounted for as a business combination under the acquisition method. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, synergies, and the use of purchased technology to develop future products and technologies. The final allocation of purchase consideration to assets and liabilities remains in process as the Company continues to evaluate certain balances, estimates, and assumptions during the measurement period (up to one year from the acquisition date). Any changes in the fair value of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.

The total consideration transferred in the acquisition was $258.0 million, consisting of the following (in thousands):


Cash	$	151,424
Cash payable	126
Class A common stock of the Company	103,977
RSUs for shares of the Company’s Class A common stock	2,457
Total purchase consideration	$	257,984

Included in the purchase consideration are $21.7 million in cash and 85,324 shares of the Company’s Class A common stock that are subject to an indemnity holdback. These cash amounts and shares will be released 18 months after the closing date of the transaction.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the condensed consolidated financial statements from the date of acquisition. The following table summarizes the fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):


Cash and cash equivalents	$	10,560
Restricted cash	573
Accounts and loans receivable, net of allowance	4,981
Prepaid expenses and other current assets	4,182
Lease right-of-use assets	1,059
Property and equipment, net	1,248
Goodwill	222,732
Intangible assets	28,500
Other non-current assets	3,476
Total assets	277,311

Accounts payable	719
Accrued expenses and other current liabilities	11,325
Lease liabilities	1,059
Other non-current liabilities	6,224
Total liabilities	19,327
Net assets acquired	$	257,984

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data):


	Fair Value		Useful Life at Acquisition (in years)
Developed technology	$	15,700	1 - 5
In-process research and development ("IPR&D")	2,500		N/A
Customer relationships	10,300		2

The intangible assets will be amortized on a straight-line basis over their respective useful lives to Technology and development expenses for developed technology and General and administrative expenses for customer relationships. Amortization of the IPR&D will be recognized in Technology and development expenses once the research and development is placed into service as internally developed software. Management applied significant judgment in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to development costs and profit, costs to recreate customer relationships, market participation profit, and opportunity cost.

Total acquisition costs of $3.0 million were incurred in relation to the acquisition, which were recognized as an expense and included in General and administrative expenses in the condensed consolidated statements of operations.

The impact of this acquisition was not considered significant to the Company’s condensed consolidated financial statements for the current period presented and pro forma financial information has not been provided.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

FairXchange, Inc.

On February 1, 2022, the Company completed the acquisition of FairXchange, Inc. (“FairX”) by acquiring all issued and outstanding shares of capital stock, stock options and warrants of FairX. FairX is a derivatives exchange which is registered with the U.S. Commodity Futures Trading Commission as a designated contract market (“DCM”) and the Company believes it will be a key stepping stone on the Company’s path to offer crypto derivatives to retail and institutional customers in the United States.

In accordance with ASC 805, Business Combinations, the acquisition was accounted for as a business combination under the acquisition method. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, market presence, synergies, and the use of purchased technology to develop future products and technologies. The final allocation of purchase consideration to assets and liabilities remains in process as the Company continues to evaluate certain balances, estimates, and assumptions during the measurement period (up to one year from the acquisition date). Any changes in the fair value of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill.

The total consideration transferred in the acquisition was $275.1 million, consisting of the following (in thousands):


Cash	$	56,726
Cash payable	10,442
Class A common stock of the Company - issued	174,229
Class A common stock of the Company - to be issued	33,693
Total purchase consideration	$	275,090

The aggregate purchase consideration includes 170,397 shares of the Company’s Class A common stock to be issued after the respective acquisition date. The fair value of these shares on the acquisition date is included in Additional paid-in capital. Additionally, included in the purchase consideration are $4.7 million in cash and 83,035 shares of the Company’s Class A common stock that are subject to an indemnity holdback. These cash amounts and shares will be released 15 months after the closing date of the transaction.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the condensed consolidated financial statements from the date of acquisition. The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands):


Cash and cash equivalents	$	10,867
Accounts and loans receivable, net of allowance	411
Prepaid expenses and other current assets	20
Intangible assets	41,000
Goodwill	231,685
Other non-current assets	8,295
Total assets	292,278

Accounts payable	472
Accrued expenses and other current liabilities	5,796
Other non-current liabilities	10,920
Total liabilities	17,188
Net assets acquired	$	275,090

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data):


	Fair Value		Useful Life at Acquisition (in years)
DCM License	$	26,900	Indefinite
Developed technology	10,700		5
Trading relationships	3,400		3

The developed technology and trading relationships will be amortized on a straight-line basis over their respective useful lives to Technology and development expenses for developed technology and General and administrative for trading relationships. The DCM license has an indefinite useful life and will not be amortized. Management applied significant judgment in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to forecasted revenues and expenses, development costs and profit, costs to recreate trading relationships, market participation profit, and opportunity cost.

Total acquisition costs of $1.1 million were incurred related to the acquisition, which were recognized as an expense and included in General and administrative expenses in the condensed consolidated statements of operations.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

2021 Acquisitions

Bison Trails

On February 8, 2021, the Company completed the acquisition of Bison Trails Co. (“Bison Trails”) by acquiring all issued and outstanding common stock and stock options of Bison Trails. Bison Trails is a platform-as-a-service company that provides a suite of easy-to-use blockchain infrastructure products and services on multiple networks to custodians, exchanges and funds.

Prior to the acquisition, the Company held a minority ownership stake in Bison Trails, which was accounted for as a cost method investment. In accordance with ASC 805, Business Combinations, the acquisition was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the cost method investment was remeasured to fair value as of the acquisition date. The Company considered multiple factors in determining the fair value of the previously held cost method investment, including the price negotiated with the selling shareholders and current trading multiples for comparable companies. Based on this analysis, the Company recognized an $8.8 million gain on remeasurement, which was recorded in Other expense (income), net in the condensed consolidated statement of operations on the acquisition date.

The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, market presence, synergies, and the use of purchased technology to develop future products and technologies.

The total consideration transferred in the acquisition was $457.3 million, consisting of the following (in thousands):


Common stock of the Company	$	389,314
Previously held interest on acquisition date	10,863
Cash	28,726
Replacement of Bison Trails options	28,365
Total purchase consideration	$	457,268

Included in the purchase consideration are 496,434 shares of the Company’s Class A common stock that are subject to an indemnity holdback. These shares will be released 18 months after the closing date of the transaction.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the condensed consolidated financial statements as of the date of acquisition. The following table summarizes the estimated fair values of assets acquired and liabilities assumed using a cost-based approach (in thousands):


Cash and cash equivalents	$	12,201
Crypto assets held	5,177
Accounts and loans receivable, net of allowance	2,323
Prepaid expenses and other current assets	122

Intangible assets	39,100
Goodwill	404,167
Other non-current assets	1,221
Lease right-of-use assets	808
Total assets	465,119

Accounts payable	526
Accrued expenses and other current liabilities	1,920
Lease liabilities	808
Other non-current liabilities	4,597
Total liabilities	7,851
Net assets acquired	$	457,268

The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data):


	Fair Value		Useful Life at Acquisition (in years)
Developed technology	$	36,000	3
IPR&D	1,200		N/A
User base	1,900		3

The intangible assets will be amortized on a straight-line basis over their respective useful lives to Technology and development expenses for developed technology and General and administrative expenses for user base. Amortization of the IPR&D will be recognized in Technology and development expenses once the research and development is placed into service as internally developed software. Management applied significant judgement in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to development costs and profit, costs to recreate customer relationships, market participation profit, and opportunity cost.

Total acquisition costs of $3.7 million were incurred related to the acquisition, which were recognized as an expense and included in General and administrative expenses in the condensed consolidated statements of operations.

The impact of this acquisition was not considered significant to the Company’s condensed consolidated financial statements and pro forma financial information has not been provided.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

4. REVENUE

Revenue recognition

The Company determines revenue recognition from contracts with customers through the following steps:

identification of the contract, or contracts, with the customer;
identification of the performance obligations in the contract;
determination of the transaction price;
allocation of the transaction price to the performance obligations in the contract; and
recognition of the revenue when, or as, the Company satisfies a performance obligation.

Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company primarily generates revenue through transaction fees charged on the platform.

The following table presents revenue of the Company disaggregated by revenue source (in thousands):


	Three Months Ended March 31,
		2022		2021
Net revenue
Transaction revenue









Retail, net		$	965,841	$	1,455,171
Institutional, net		47,195		85,409
Total transaction revenue		1,013,036		1,540,580

Subscription and services revenue
Blockchain rewards		81,895		9,251
Custodial fee revenue		31,694		23,451
Earn campaign revenue		5,906		11,111
Interest income		10,454		3,320

Other subscription and services revenue		21,906		9,268
Total subscription and services revenue		151,855		56,401
Total net revenue		1,164,891		1,596,981

Other revenue

Crypto asset sales revenue		569		203,799
Corporate interest and other income		976		332


Total other revenue		1,545		204,131

Total revenue		$	1,166,436	$	1,801,112

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Transaction revenue

Retail transaction revenue represents transaction fees earned from customers that are primarily individuals, while institutional transaction revenue represents transaction fees earned from institutional customers, such as hedge funds, family offices, principal trading firms, and financial institutions on the institutional platform. Institutional clients can trade via the Company’s trading platform or utilize Coinbase Prime services depending on their needs. High-frequency trading firms, such as market makers and principal traders, benefit from lower latency by connecting through the trading platform, while corporations and family offices can access an integrated suite of investment services through Coinbase Prime.

The Company’s service is comprised of a single performance obligation to provide a crypto asset matching service when customers buy, sell, or convert crypto assets on the platform. That is, the Company is an agent in transactions between customers and presents revenue for the fees earned on a net basis.

Judgment is required in determining whether the Company is the principal or the agent in transactions between customers. The Company evaluates the presentation of revenue on a gross or net basis based on whether it controls the crypto asset provided before it is transferred to the customer (gross) or whether it acts as an agent by arranging for other customers on the platform to provide the crypto asset to the customer (net). The Company does not control the crypto asset being provided before it is transferred to the buyer, does not have inventory risk related to the crypto asset, and is not responsible for the fulfillment of the crypto asset. The Company also does not set the price for the crypto asset as the price is a market rate established by users of the platform. As a result, the Company acts as an agent in facilitating the ability for a customer to purchase crypto assets from another customer.

The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time the transaction is processed. Contracts with customers are usually open-ended and can be terminated by either party without a termination penalty. Therefore, contracts are defined at the transaction level and do not extend beyond the service already provided.

The Company charges a fee at the transaction level. The transaction price, represented by the trading fee, is calculated based on volume and varies depending on payment type and the value of the transaction. Crypto asset purchase or sale transactions executed by a customer on the Company’s platform is based on tiered pricing that is driven primarily by transaction volume processed for a specific historical period. The Company has concluded that this volume-based pricing approach does not constitute a future material right since the discount is within a range typically offered to a class of customers with similar volume. The transaction fee is collected from the customer at the time the transaction is executed. In certain instances, the transaction fee can be collected in crypto assets, with revenue measured based on the amount of crypto assets received and the fair value of the crypto assets at the time of the transaction.

The transaction price includes estimates for reductions in revenue from transaction fee reversals that may not be recovered from customers. Such reversals occur when the customer disputes a transaction processed on their credit card or their bank account for a variety of reasons and seeks to have the charge reversed after the Company has processed the transaction. These amounts are estimated based upon the most likely amount of consideration to which the Company will be entitled. All estimates are based on historical experience and the Company’s best judgment at the time to the extent it is probable that a significant reversal of revenue recognized will not occur. All estimates of variable consideration are reassessed periodically. The total transaction price is allocated to the single performance obligation. While the Company recognizes transaction fee reversals as a reduction of net revenue, crypto asset losses related to those same transaction reversals are included in Transaction expense.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Blockchain rewards

The Company generates revenues in crypto assets through various blockchain protocols. These blockchain protocols, or the participants that form the protocol networks, reward users for performing various activities on the blockchain, such as participating in proof-of-stake networks and other consensus algorithms. The Company considers itself the principal in transactions with the blockchain networks, and therefore presents such blockchain rewards earned on a gross basis. Blockchain rewards are primarily comprised of Staking revenue in which the Company participates in networks with proof-of-stake consensus algorithms, through creating or validating blocks on the network using the staking validators that it controls. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that the Company controls. Revenue is measured based on the number of tokens received and the fair value of the token at contract inception. Blockchain services offered as part of Coinbase Cloud’s blockchain infrastructure solutions are included in Other subscription and services revenue.

Custodial fee revenue

The Company provides a dedicated secure cold storage solution to customers and earns a fee, which is based on a contractual percentage of the daily value of assets under custody. The fee is collected on a monthly basis. These contracts typically have one performance obligation which is provided and satisfied over the term of the contracts as customers simultaneously receive and consume the benefits of the services. The contract may be terminated by a customer at any time, without incurring a penalty. Customers are billed on the last day of the month during which services were provided, with the amounts being due within thirty days of receipt of the invoice. Accounts receivable from customers for Custodial fee revenue, net of allowance, were $15.8 million and $22.4 million as of March 31, 2022 and December 31, 2021, respectively. The allowance recognized against these fees was not material for any of the periods presented.

Earn campaign revenue

The Company provides a platform for crypto asset issuers, the customer, to engage with the Company’s retail users and teach them about new crypto assets through the use of educational tools, videos, and tutorials. In exchange for completing a task, such as watching the video or downloading an application, retail users may be eligible to receive crypto assets from the crypto asset issuer. The Company is the agent with respect to the delivery of the crypto assets. The Company earns a commission from the crypto asset issuer based on the amount of crypto assets that are distributed to users.

Interest income and corporate interest and other income

The Company holds customer custodial funds and cash and cash equivalents at certain third-party banks which earn interest. The Company also earns interest income under a revenue sharing arrangement and on loans granted to retail and institutional users. Interest income is calculated using the interest method and is not within the scope of Topic 606 – Revenue from Contracts with Customers. Interest earned on customer custodial funds, revenue sharing, and loans is included in Interest income within Subscription and services revenue. Interest earned on cash and cash equivalents is included in Corporate interest and other income, within Other revenue.

Other subscription and services revenue

Other subscription and services revenue primarily includes revenue from Coinbase Cloud, which includes staking application, delegation, and infrastructure services, as well as revenue from subscription licenses. Generally, these contracts with customers contain one performance obligation, may have variable and non-cash consideration, and are satisfied at a point in time or over the period that services are provided.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Other revenue

Other revenue includes the sale of crypto assets and Corporate interest and other income. Periodically, as an accommodation to customers, the Company may fulfill customer transactions using the Company’s own crypto assets held for operating purposes. The Company has custody and control of the crypto assets prior to the sale to the customer and records revenue at the point in time when the sale to the customer is processed. Accordingly, the Company records the total value of the sale in Other revenue and the cost of the crypto assets in Other operating expense, net within the condensed consolidated statements of operations. The cost of crypto assets used in fulfilling customer transactions was $0.4 million and $186.3 million for the three months ended March 31, 2022 and March 31, 2021, respectively.

Related party transactions

Certain of the Company’s directors, executive officers, and principal owners, including immediate family members, are users of the Company’s platform. The Company recognized revenue with related parties of $5.0 million and $5.3 million for the three months ended March 31, 2022 and March 31, 2021, respectively. As of March 31, 2022 and December 31, 2021, amounts receivable from related parties was $3.3 million and $4.5 million, respectively. As of March 31, 2022, Custodial funds due to related party customers was $85.8 million. As of December 31, 2021, Custodial funds due to related party customers was immaterial.

Revenue by geographic location

In the table below are the revenues disaggregated by geography, based on domicile of the client or booking location, as applicable (in thousands):


	Three Months Ended March 31,
		2022		2021
United States		$	955,833	$	1,465,436

Rest of the World(1)		210,603		335,676
Total revenue		$	1,166,436	$	1,801,112

(1)No other individual country accounted for more than 10% of total revenue

5. ACCOUNTS AND LOANS RECEIVABLE, NET OF ALLOWANCE

Accounts and loans receivable, net of allowance consisted of the following (in thousands):


	March 31,		December 31,
	2022		2021
In-transit customer receivables	$	63,510	$	102,720
Trade finance receivables	5,995		1,865
Custodial fee revenue receivable	18,039		23,727
Loans receivable(1)	218,322		218,461
Interest and other receivables(2)	60,599		73,803
Allowance for doubtful accounts(3)	(20,417)		(24,551)
Total accounts and loans receivable, net of allowance	$	346,048	$	396,025

(1)The fair value of collateral held as security exceeded the outstanding loans receivable as of March 31, 2022 and December 31, 2021, so no allowance was recorded.

(2)Includes Accounts receivables denominated in crypto assets of $27.1 million and $26.4 million as of March 31, 2022 and December 31, 2021, respectively. Includes Crypto asset futures of $2.4 million and $0 as of March 31, 2022 and December 31, 2021, respectively.

(3)Includes provision for transaction losses of $9.2 million and $16.8 million as of March 31, 2022 and December 31, 2021, respectively.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Loans receivable

The Company grants loans to retail users and institutions. As of March 31, 2022 and December 31, 2021, the Company had granted loans with an outstanding balance of $218.3 million and $218.5 million, respectively. The related interest receivable on the loans as of March 31, 2022 and December 31, 2021, was $1.3 million and $1.3 million, respectively.

The amounts loaned are collateralized with the crypto assets held by the borrower in their crypto asset wallet on the Company’s platform. The Company does not have the right to use such collateral unless the borrower defaults on the loans. The Company’s credit exposure is significantly limited and no allowance was recorded against these loans receivable. Loans receivable are measured at amortized cost. The carrying value of the loans approximates their fair value. As of March 31, 2022 and December 31, 2021, there were no loans receivable past due.

6. GOODWILL, INTANGIBLE ASSETS, NET AND CRYPTO ASSETS HELD

Goodwill

The following table reflects the changes in the carrying amount of goodwill (in thousands):


	Three Months Ended March 31, 2022		Year Ended December 31, 2021


Balance, beginning of period	$	625,758	$	77,212
Additions due to business combinations	454,418		548,546

Balance, end of period	$	1,080,176	$	625,758

There was no impairment recognized against goodwill at the beginning or end of the periods presented.

Intangible assets, net

Intangible assets, net consisted of the following (in thousands, except years data):


As of March 31, 2022	Gross Carrying Amount		Accumulated Amortization		Intangible Assets, Net		Weighted Average Remaining Useful Life (in years)
Amortizing intangible assets
Acquired developed technology	$	127,308	$	(46,128)	$	81,180	2.66
User base	2,997		(1,302)		1,695		1.50
Customer relationships	89,791		(32,725)		57,066		3.18

Non-compete agreement	2,402		(1,281)		1,121		2.34
Assembled workforce	60,800		(17,416)		43,384		1.19
Trade Relationships	3,400		(189)		3,211		2.84
In-process research and development(1)	4,321		—		4,321		N/A
Indefinite-lived intangible assets
Domain name	250		—		250		N/A
Licenses	26,900		—		26,900		N/A
Total	$	318,169	$	(99,041)	$	219,128

(1)Amortization begins once the technology is placed in service. IPR&D is expected to have a useful life of three years.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)


As of December 31, 2021	Gross Carrying Amount		Accumulated Amortization		Intangible Assets, Net		Weighted Average Remaining Useful Life (in years)
Amortizing intangible assets
Acquired developed technology	$	100,908	$	(34,865)	$	66,043	1.97
User base	2,997		(1,020)		1,977		1.75
Customer relationships	79,491		(27,789)		51,702		3.68

Non-compete agreement	2,402		(1,161)		1,241		2.58
Assembled workforce	60,800		(8,324)		52,476		1.43
In-process research and development(1)	3,000		—		3,000		N/A

Indefinite-lived intangible assets
Domain name	250		—		250		N/A


Total	$	249,848	$	(73,159)	$	176,689

(1)Amortization begins once the technology is placed in service. IPR&D is expected to have a useful life of three years.

Amortization expense of intangible assets was $25.9 million and $6.9 million for the three months ended March 31, 2022 and March 31, 2021 respectively. The Company estimates that there is no significant residual value related to its amortizing intangible assets. During the three months ended March 31, 2022, the Company recorded impairment charges of $1.2 million related to its intangible assets, excluding Crypto assets held. The Company did not have any impairment charges in the three months ended March 31, 2021. Impairment expense is included in Other operating expense, net in the condensed consolidated statements of operations.

The expected future amortization expense for intangible assets other than IPR&D as of March 31, 2022 is as follows (in thousands):


2022 (for the remainder of)	$	78,507
2023	69,814
2024	21,221
2025	13,119
2026	4,818
Thereafter	178
Total expected future amortization expense	$	187,657

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Crypto assets held

Crypto assets held consisted of the following (in thousands):


	March 31,		December 31,
	2022		2021
Recorded at impaired cost
Crypto assets held as investments	$	487,651	$	209,415
Crypto assets held for operating purposes	277,699		357,093
Total Crypto assets held recorded at impaired cost	765,350		566,508
Recorded at fair value(1)
Crypto assets held for operating purposes	87,336		—
Crypto assets borrowed	480,647		421,685
Total Crypto assets held recorded at fair value	567,983		421,685
Total Crypto assets held	$	1,333,333	$	988,193

(1)Recorded at fair value as these Crypto assets are held as the hedged item in qualifying fair value hedges.

Crypto assets held as of March 31, 2022 and December 31, 2021 include $4.8 million and $38.1 million, respectively, of crypto assets loaned to customers under the trade finance receivables settlement arrangements as these did not meet the criteria for derecognition.

The Company recorded gross impairment charges of $228.0 million and $0.8 million during the three months ended March 31, 2022 and March 31, 2021, respectively, due to the observed market price of crypto assets decreasing below the carrying value at some point during the period. The Company partially recovered impairments recorded during the period through both subsequent crypto asset sales and disposals. Impairment charges of $209.8 million relate to the crypto assets still held as of March 31, 2022. Impairment expense is included in Other operating expense, net in the condensed consolidated statements of operations.

See Note 10. Derivatives, for additional details regarding Crypto assets held designated as hedged items in fair value hedges. See Note 11. Fair Value Measurements, for additional details regarding the carrying value of the Company’s Crypto assets held.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

7. PREPAID EXPENSES AND OTHER ASSETS

Prepaid expenses and other current assets, and Other non-current assets consisted of the following (in thousands):


	March 31,		December 31,
	2022		2021
Prepaid expenses and other current assets
Prepaid expenses	$	181,261	$	123,246

Deposits	7,242		9,658
Other	2,565		2,945



Total prepaid expenses and other current assets	$	191,068	$	135,849

Other non-current assets
Equity method investments	$	628	$	1,463
Strategic investments	400,495		363,950
Deferred tax assets	750,566		573,547
Deposits	12,729		13,347
Other	195		—
Total other non-current assets	$	1,164,613	$	952,307

Strategic investments

The Company makes strategic investments in various companies and technologies through Coinbase Ventures. Strategic investments primarily include equity investments in privately held companies without readily determinable fair values where the Company (1) holds less than 20% ownership in the entity, and (2) does not exercise significant influence. These investments are recorded at cost and adjusted for observable transactions for same or similar investments of the same issuer (referred to as the measurement alternative) and impairment. The changes in the carry value of strategic investments accounted for under the measurement alternative are presented below (in thousands):


	Three Months Ended March 31,
	2022		2021
Carrying amount, beginning of period	$	352,431	$	26,146
Net additions(1)	26,214		9,438
Upward adjustments	879		1,387
Previously held interest in Bison Trails (see Note 3)	—		(2,000)
Impairments and downward adjustments	(100)		(50)

Carrying amount, end of period(2)	$	379,424	$	34,921

(1)Net additions include additions from purchases and reductions due to exits of securities and reclassifications due to changes to capital structure.

(2)Excludes $21.1 million and $0 as at March 31, 2022 and March 31, 2021, respectively, of strategic investments that are not accounted for under the measurement alternative.

Upward adjustments, impairments, and downward adjustments from remeasurement of investments are included in Other expense (income), net in the condensed consolidated statements of operations. As of March 31, 2022, cumulative upward adjustments were $4.8 million and cumulative impairments and downward adjustments were $0.6 million. As of December 31, 2021, cumulative upward adjustments and impairments and downward adjustments were $4.6 million and $0.5 million, respectively.

During the three months ended March 31, 2022 and the year ended December 31, 2021, the Company invested an aggregate of $2.2 million and $203.1 million, respectively, in investees in which certain related parties of the Company held an interest over 10%.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

Accrued expenses and other current liabilities consisted of the following (in thousands):


	March 31,		December 31,
	2022		2021






Accrued expenses	$	293,182	$	195,810

Accrued payroll and payroll related	113,859		146,313
Income taxes payable	3,816		4,553

Short-term borrowings	149,426		20,060
Other payables(1)	87,677		72,823
Total accrued expenses and other current liabilities	$	647,960	$	439,559

(1)Includes Other payables denominated in crypto assets of $32.6 million as of March 31, 2022 and an immaterial amount as of December 31, 2021.

Short-term borrowings include amounts payable within the next 12 months or sooner at the option of the Company or the lender. The weighted average interest rate on these borrowings were 5.18% and 5.00% per annum as of March 31, 2022 and December 31, 2021, respectively. As of March 31, 2022, Short-term borrowings in the aggregate principal amount of $50.0 million were secured by Bitcoin with a value equal to 200% of the outstanding principal.

9. INDEBTEDNESS

Convertible Senior Notes

In May 2021, the Company issued an aggregate principal amount of $1.44 billion of convertible senior notes due in 2026 (the “2026 Convertible Notes”) pursuant to an indenture, dated May 18, 2021 (the “Convertible Notes Indenture”), between the Company and U.S. Bank National Association, as trustee. The 2026 Convertible Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”).

As of March 31, 2022, the outstanding aggregate principal balance of the 2026 Convertible Notes and the related unamortized discounts were $1.44 billion and $28.0 million, respectively.

Senior Notes

In September 2021, the Company completed the issuance of an aggregate principal amount of $1.0 billion of senior notes due on October 1, 2028 (the “2028 Senior Notes”) and an aggregate principal amount of $1.0 billion of senior notes due on October 1, 2031 (the “2031 Senior Notes” and together with the 2028 Senior Notes, the “Senior Notes”). The Senior Notes were issued within the United States only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act.

The indenture governing the Senior Notes contains customary covenants that restrict the ability of the Company and certain of its subsidiaries to incur debt and liens. The Company is not aware of any instances of non-compliance with the covenants as of March 31, 2022.

As of March 31, 2022, the outstanding aggregate principal balance of the 2028 Senior Notes and the related unamortized discounts were $1.0 billion and $11.2 million, respectively. As of March 31, 2022, the outstanding aggregate principal balance of the 2031 Senior Notes and the related unamortized discounts were $1.0 billion and $11.5 million, respectively.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Interest

The following table summarizes the interest obligations for the 2026 Convertible Notes, the 2028 Senior Notes and the 2031 Senior Notes (in thousands, except percentages):


			Three Months Ended March 31, 2022
Indebtedness	Effective interest rate		Coupon interest expense		Amortization of debt discounts and debt issuance costs		Total interest expense
2026 Convertible Notes	0.98	%	$	1,953	$	1,440	$	3,393
2028 Senior Notes	3.57	%	8,437		381		8,818
2031 Senior Notes	3.77	%	9,017		249		9,266
Total			$	19,407	$	2,070	$	21,477

Debt discounts and debt issuance costs are amortized to Interest expense using the effective interest method over the contractual term of the respective note.

10. DERIVATIVES

The following outlines the Company’s derivatives and the related hedge accounting designation, as applicable.


Type of derivative	Description of derivative	Location of host contract and derivative on balance sheet
Crypto asset borrowings(1)	The Company borrows crypto assets that result in the obligation to deliver a fixed amount of crypto assets in the future.	Crypto asset borrowings
Accounts receivable denominated in crypto assets	The Company provides services for which, under the contract, the customer pays in crypto assets. The amount of crypto assets are fixed at the time of invoicing. The right to receive fixed amounts of crypto assets consists of a receivable host contract and an embedded forward contract to purchase crypto assets.	Accounts and loans receivable, net of allowance
Other payables denominated in crypto assets	The Company enters into arrangements that result in the obligation to deliver a fixed amount of crypto assets in the future.	Accrued expenses and other current liabilities
Crypto asset futures(1)	The Company enters into short positions on futures contracts to minimize the exposure on the change in the fair value price of Crypto assets held.	Accounts and loans receivable, net of allowance

(1) For risk management purposes, the Company applies hedge accounting using these derivative instruments in qualifying fair value hedges to primarily hedge the fair value exposure of crypto asset prices.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Impact of derivatives on the condensed consolidated balance sheets

The following table summarizes the notional amounts of derivative instruments outstanding, measured in U.S. dollar equivalents (in thousands):


	March 31,		December 31,
	2022		2021
Designated as hedging instrument
Crypto asset borrowings with embedded derivatives	$	598,908	$	669,445
Crypto asset futures	86,011		—



Not designated as hedging instrument
Accounts receivable denominated in crypto assets	21,727		17,415
Other payables denominated in crypto assets	32,589		—
Crypto asset futures	6,930		—

The following tables summarize information on derivative assets and liabilities that are reflected in the Company’s condensed consolidated balance sheets, by accounting designation (in thousands):


	Gross derivative assets						Gross derivative liabilities
March 31, 2022	Not designated as hedges		Designated as hedges		Total derivative assets		Not designated as hedges		Designated as hedges		Total derivative liabilities
Crypto asset borrowings with embedded derivatives(1)	$	—	$	249,906	$	249,906	$	—	$	136,562	$	136,562
Accounts receivable denominated in crypto assets	5,326		—		5,326		—		—		—
Crypto asset futures	—		2,399		2,399		—		—		—
Total fair value of derivative assets and liabilities	$	5,326	$	252,305	$	257,631	$	—	$	136,562	$	136,562

(1) During the three months ended March 31, 2022, the fee on these borrowings ranged from 0.0% to 4.5%. During the three months ended March 31, 2021, the fee on these borrowings ranged from 1.7% to 7.0%. During the three months ended March 31, 2022 and March 31, 2021, the Company incurred $1.4 million and $4.3 million of borrowing fees in crypto assets, respectively. Borrowing fees are included in Other operating expense, net in the condensed consolidated statements of operations.


	Gross derivative assets						Gross derivative liabilities
December 31, 2021	Not designated as hedges		Designated as hedges		Total derivative assets		Not designated as hedges		Designated as hedges		Total derivative liabilities
Crypto asset borrowings with embedded derivatives	$	—	$	336,396	$	336,396	$	—	$	93,616	$	93,616
Accounts receivable denominated in crypto assets	9,033		—		9,033		—		—		—
Total fair value of derivative assets and liabilities	$	9,033	$	336,396	$	345,429	$	—	$	93,616	$	93,616

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Impact of derivatives on the condensed consolidated statements of operations

Gains (losses) on derivative instruments recognized in the Company’s condensed consolidated statements of operations were as follows (in thousands):


	Gains (losses) recorded in Other operating expense, net
	Three Months Ended March 31, 2022						Three Months Ended March 31, 2021
	Derivatives		Hedged items		Income statement impact		Derivatives		Hedged items		Income statement impact
Designated as fair value hedging instruments
Crypto asset borrowings with embedded derivatives	$	4,998	$	(4,924)	$	74	$	(267,400)	$	258,124	$	(9,276)
Crypto asset futures	(2,666)		2,743		77		—		—		—

Not designated as hedging instruments
Accounts receivable denominated in crypto assets	(4,913)		—		(4,913)		—		—		—

Crypto asset futures	(1,692)		—		(1,692)		—		—		—

Total	$	(4,273)	$	(2,181)	$	(6,454)	$	(267,400)	$	258,124	$	(9,276)

The following amounts were recorded in the condensed consolidated balance sheets related to certain cumulative fair value hedge basis adjustments that are expected to reverse through the condensed consolidated statements of operations in future periods as an adjustment to Other operating expense, net (in thousands):


			Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items
March 31, 2022	Carrying amount of the hedged items		Active hedging relationships		Discontinued hedging relationships		Total
Crypto assets held	$	567,983	$	(111,931)	$	515	$	(111,416)


			Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items
December 31, 2021	Carrying amount of the hedged items		Active hedging relationships		Discontinued hedging relationships		Total
Crypto assets held	$	421,685	$	(240,771)	$	—	$	(240,771)

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

11. FAIR VALUE MEASUREMENTS

The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities measured and recorded at fair value on a recurring basis (in thousands):


	March 31, 2022								December 31, 2021
	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Assets
Cash and cash equivalents(1)	$	3,975,881	$	—	$	—	$	3,975,881	$	4,813,621	$	—	$	—	$	4,813,621
Customer custodial funds(2)	3,066,565		—		—		3,066,565		3,566,072		—		—		3,566,072
Crypto assets held(3)	—		567,983		—		567,983		—		421,685		—		421,685
Derivative assets(4)	—		257,631		—		257,631		—		345,429		—		345,429

Total assets	$	7,042,446	$	825,614	$	—	$	7,868,060	$	8,379,693	$	767,114	$	—	$	9,146,807

Liabilities
Derivative liabilities(4)(5)	$	—	$	136,562	$	—	$	136,562	$	—	$	93,616	$	—	$	93,616
Contingent consideration arrangement	—		—		14,828		14,828		—		—		14,828		14,828
Total liabilities	$	—	$	136,562	$	14,828	$	151,390	$	—	$	93,616	$	14,828	$	108,444

(1)Excludes corporate cash of $2.1 billion and $2.3 billion held in deposit at financial institutions and crypto asset trading venues and not measured and recorded at fair value as of March 31, 2022 and December 31, 2021, respectively.

(2)Excludes customer custodial funds of $7.0 billion held in deposit at financial institutions and not measured and recorded at fair value as of March 31, 2022 and December 31, 2021.

(3)Includes crypto assets held that have been designated as hedged items in fair value hedges and excludes crypto assets of $765.4 million and $566.5 million held at cost as of March 31, 2022 and December 31, 2021, respectively.

(4)Excludes crypto asset borrowings of $598.9 million and $669.4 million, representing the host liability contract which is not measured and recorded at fair value as of March 31, 2022 and December 31, 2021, respectively. Additionally, excludes the host contract of $21.7 million and $17.4 million related to Accounts receivable denominated in crypto assets as of March 31, 2022 and December 31, 2021, respectively.

(5)Excludes the host contract of $32.6 million and an immaterial amount related to Other payables denominated in crypto assets as of March 31, 2022 and December 31, 2021, respectively.

The Company did not make any transfers between the levels of the fair value hierarchy during the three months ended March 31, 2022 and the year ended December 31, 2021.

Assets and liabilities measured and recorded at fair value on a non-recurring basis

The Company’s non-financial assets, such as Goodwill, Intangible assets, Property and equipment, and Crypto assets held but not designated in hedging relationships are adjusted to fair value when an impairment charge is recognized. The Company’s strategic investments are also measured at fair value on a non-recurring basis. Such fair value measurements are based predominately on Level 3 inputs. Fair value of crypto assets held are predominantly based on Level 2 inputs.

Financial assets and liabilities not measured and recorded at fair value

The Company’s financial instruments, including certain Cash and cash equivalents, Restricted cash, certain Customer custodial funds, USDC, Custodial funds due to customers, Short-term borrowings and Loans receivable are carried at amortized cost, which approximates their fair value. If these financial instruments were recorded at fair value, they would be based on Level 1 inputs, except for Short-term borrowings and Loans receivable which would be based on Level 2 and Level 3 inputs, respectively.

The Company estimates the fair value of its 2026 Convertible Notes and Senior Notes based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. As of March 31, 2022, the estimated fair value of the 2026 Convertible Notes and Senior Notes were $1.34 billion and $1.75 billion, respectively.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

12. COMMON STOCK

Effective April 1, 2021, the Company amended and restated its certificate of incorporation to authorize 10,000,000,000 shares of Class A common stock, 500,000,000 shares of Class B common stock, 500,000,000 shares of undesignated common stock, and 500,000,000 shares of undesignated preferred stock. Shares of Class A common stock and Class B common stock will be treated equally, identically and ratably, on a per share basis, with respect to dividends that may be declared by the Company’s board of directors. Holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to 20 votes per share. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Company. Upon a liquidation, dissolution or winding-up of the Company, the assets legally available for distribution to stockholders would be distributed ratably among the holders of Class A common stock and Class B common stock and any participating preferred stock or new series of common stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock or new series of common stock. Shares of Class B common stock are convertible at any time at the option of the holder into shares of Class A common stock on a one-to-one basis. In addition, each share of Class B common stock will automatically convert into a share of Class A common stock upon a sale or transfer (other than with respect to certain estate planning and other transfers). Further, upon certain events specified in the restated certificate of incorporation, all outstanding shares of Class B common stock will convert automatically into shares of Class A common stock.

The Company has reserved shares of Class A common stock and Class B common stock for issuance for the following purposes (in thousands):


	March 31,	December 31,
	2022	2021
Class A common stock

Options issued and outstanding under the 2013 Amended and Restated Stock Plan (the “2013 Plan”)	1,230	1,569

Options issued and outstanding under the 2019 Equity Incentive Plan (the “2019 Plan”)	28,267	29,311
RSUs issued and outstanding under the 2019 Plan	4,419	5,851

Options issued and outstanding under the 2021 Equity Incentive Plan (the “2021 Plan”)	720	—
RSUs issued and outstanding under the 2021 Plan	4,947	1,402
Shares available for future issuance under the 2021 Plan	43,246	35,856
Shares available for future issuance under the 2021 Employee Stock Purchase Plan (the “ESPP”)	7,252	5,125
Replacement options issued and outstanding from the Tagomi acquisition	4	4
Replacement options issued and outstanding from the Bison Trails acquisition	196	223
RSUs issued and outstanding from other acquisitions	229	229

Shares available for future issuance of warrants	2,296	2,296
Total Class A common stock shares reserved	92,806	81,866

Class B common stock
Options issued and outstanding under the 2013 Plan	5,792	6,101

Total Class B common stock shares reserved	5,792	6,101

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

13. STOCK-BASED COMPENSATION

Stock options

Activity of options outstanding are as follows (in thousands, except per share and years data):


	Options Outstanding	Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value
Balance at January 1, 2022	37,208	$	18.60	7.83	$	8,698,078
Issued	725	211.62
Exercised	(1,099)	15.41
Forfeited and cancelled	(625)	23.78

Balance at March 31, 2022	36,209	22.47		7.63	6,077,685

Vested and exercisable at March 31, 2022	16,825	15.91		6.98	2,928,023
Vested and expected to vest at March 31, 2022	30,075	22.27		7.48	5,056,991

During the three months ended March 31, 2022, the Company granted stock options for the purchase of 724,751 shares of the Company’s Class A common stock with a weighted-average grant date fair value of $94.53 per share to certain employees of the Company. The stock options vest over three years at a rate of 1/12 per quarter.

As of March 31, 2022, there was total unrecognized compensation cost of $214.8 million related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately 2.7 years.

The assumptions used under the Black-Scholes-Merton option pricing model and the weighted average calculated value of the options granted to employees were as follows:


	Three Months Ended March 31,
	2022		2021
Dividend yield	0.0	%	0.0	%
Expected volatility	55.1	%	44.0	%
Expected term (in years)	5.8		4.8
Risk-free interest rate	1.8	%	0.5	%

As of March 31, 2022, there were 380,944 shares subject to repurchase related to stock options early exercised and not yet vested, but that are expected to vest. As of March 31, 2022, the Company recorded a liability related to these shares subject to repurchase in the amount of $7.3 million, which is included within Accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

Chief Executive Officer performance award

During the three months ended March 31, 2022, stock-based compensation expense of $1.0 million was recognized related to this award. The Company did not recognize any stock-based compensation expenses relating to this award during the three months ended March 31, 2021.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Restricted stock units

The Company’s RSUs vest upon the satisfaction of a service-based condition. In general, the RSUs vest over a service period ranging from one to four years. Once vested, the RSUs are settled by delivery of Class A common stock.

Activity of RSUs outstanding are as follows (in thousands, except per share data):


	Number of shares	Weighted-Average Grant Date Fair Value Per Share
Balance at January 1, 2022	7,482	$	157.22
Granted	4,523	191.09
Vested	(2,037)	162.70
Forfeited and cancelled	(373)	154.97
Balance at March 31, 2022	9,595	172.11

For RSUs granted during the three months ended March 31, 2022, the closing price of the Company’s Class A common stock as reported on The Nasdaq Global Select Market on the grant date was used as the fair value.

As of March 31, 2022, there was total unrecognized compensation cost of $1.5 billion related to unvested RSUs. These costs are expected to be recognized over a weighted-average period of approximately 1.87 years.

Restricted common stock

As part of the Company’s acquisitions, the Company issued restricted Class A common stock. Vesting of this restricted Class A common stock is dependent on a service-based vesting condition that is generally satisfied over three years. The Company has the right to repurchase shares at par value for which the vesting condition is not satisfied. Activity of restricted Class A common stock is as follows (in thousands, except per share data):


	Number of shares	Weighted-Average Grant Date Fair Value Per Share
Balance at January 1, 2022	2,014	$	137.57
Granted	323	126.85
Vested	(549)	134.77
Forfeited and cancelled	—	—
Balance at March 31, 2022	1,788	136.50

As of March 31, 2022, there was total unrecognized compensation cost of $215.8 million related to unvested restricted Class A common stock. These costs are expected to be recognized over a weighted-average period of approximately 2.07 years.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Employee Stock Purchase Plan

The ESPP allows eligible employees the option to purchase shares of the Company's Class A common stock at a 15% discount, over a series of offering periods through accumulated payroll deductions over the period. The ESPP also includes a look-back provision for the purchase price if the stock price on the purchase date is lower than the stock price on the offering date. The Company recognizes stock-based compensation expenses related to purchase rights issued pursuant to its ESPP on a straight-line basis over the offering period, which is 24 months. The fair value of purchase rights under the ESPP are estimated on the date of grant using the Black-Scholes-Merton option valuation model.

The grant date of the initial offering period was May 3, 2021, and that offering period shall end on April 30, 2023. As of March 31, 2022, the Company recorded a liability of $16.4 million related to the accumulated payroll deductions, which are refundable to employees who withdraw from the ESPP. This amount is included within Accrued expenses and other current liabilities in the accompanying condensed consolidated balance sheets.

Stock-based compensation expense

Stock-based compensation is included in the following components of expenses on the accompanying condensed consolidated statements of operations (in thousands):


	Three Months Ended March 31,
	2022		2021
Technology and development	$	256,524	$	73,256
Sales and marketing	14,956		3,531
General and administrative	80,661		27,841

Total	$	352,141	$	104,628

During the three months ended March 31, 2022 and March 31, 2021, $1.4 million and $0.7 million of stock-based compensation expense was included in capitalized software, respectively.

14. INCOME TAXES

The Company’s effective tax rate (“ETR”) for the three months ended March 31, 2022 and March 31, 2021 was 29.5% and 22.6%, respectively. The ETR of 29.5% for the three months ended March 31, 2022 was higher than the U.S. statutory rate of 21% primarily due to the tax benefit on (i) compensation expense on deductible stock compensation at a fair market value, net of limitations, and (ii) U.S. federal research and development credits.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

15. NET (LOSS) INCOME PER SHARE

The computation of net (loss) income per share is as follows (in thousands, except per share amounts):


	Three Months Ended March 31,
		2022		2021
Basic net (loss) income per share:
Numerator
Net (loss) income		$	(429,659)	$	771,463
Less: Income allocated to participating securities		—		(469,567)

Net (loss) income attributable to common stockholders, basic		$	(429,659)	$	301,896

Denominator
Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders, basic		217,472		79,373
Net (loss) income per share attributable to common stockholders, basic		$	(1.98)	$	3.80

Diluted net (loss) income per share:
Numerator
Net (loss) income		$	(429,659)	$	771,463
Less: Income allocated to participating securities		—		(383,744)


Net (loss) income attributable to common stockholders - diluted		$	(429,659)	$	387,719

Denominator
Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders, basic		217,472		79,373
Weighted-average effect of potentially dilutive securities:
Stock options		—		44,492
RSUs		—		2,841

Warrants		—		290


Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders, diluted		217,472		126,996

Net (loss) income per share attributable to common stockholders, diluted		$	(1.98)	$	3.05

Certain restricted Class A common stock granted as consideration in acquisitions and the Company’s convertible preferred stock outstanding during 2021 are participating securities. These participating securities do not contractually require the holders of such shares to participate in the Company’s losses.

The rights, including the liquidation and dividend rights, of the holders of Class A common stock and Class B common stock are identical, except with respect to voting. As a result, the undistributed earnings are allocated on a proportionate basis and the resulting income (loss) per share will, therefore, be the same for both Class A common stock and Class B common stock on an individual or combined basis.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive (in thousands):


	Three Months Ended March 31,
		2022	2021
Stock options		36,209	192
RSUs		9,595	2,331
Convertible notes		3,880	—
Restricted common stock		2,116	—
Employee stock purchase plan		382	—
Contingent consideration		151	—
Total		52,333	2,523

16. COMMITMENTS AND CONTINGENCIES

Crypto asset wallets

The Company has committed to securely store all crypto assets it holds on behalf of users. As such, the Company may be liable to its users for losses arising from theft or loss of user private keys. The Company has no reason to believe it will incur any expense associated with such potential liability because (i) it has no known or historical experience of claims to use as a basis of measurement, (ii) it accounts for and continually verifies the amount of crypto assets within its control, and (iii) it has established security around custodial private keys to minimize the risk of theft or loss. Since the risk of loss is remote, the Company had not recorded a liability at March 31, 2022 or December 31, 2021.

Indemnifications

In the event any registrable securities are included in a registration statement, the Company’s Amended and Restated Investors’ Rights Agreement (the “IRA”) entered into with certain of the Company’s stockholders provides indemnity to each stockholder, their partners, members, officers, directors, and stockholders, legal counsel, and accountants; each underwriter, if any; and each person who controls each stockholder or underwriter, against any damages incurred in connection with investigating or defending any claim or proceeding arising as a result of such registration from which damages may result. The Company will reimburse each such party for any legal and any other expenses reasonably incurred, provided that the Company will not be liable in any such case to the extent the damages arise out of or are based upon any actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such stockholder or underwriter and stated to be specifically for use therein.

The Company also has indemnity agreements with certain officers and directors of the Company pursuant to which the Company must indemnify the officer or director against all expenses, judgments, fines, and amounts paid in settlement reasonably incurred in connection with a third party proceeding, if the indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and in the case of a criminal proceeding, had no reasonable cause to believe the indemnitee’s conduct was unlawful.

It is not possible to determine the maximum potential exposure under these indemnification agreements: (i) because the facts and circumstances involved in each claim are unique and the Company cannot predict the number or nature of claims that may be made; (ii) due to the unique facts and circumstances involved in each particular agreement; and (iii) due to the requirement for a registration of the Company’s securities before any of the indemnification obligations contemplated in the IRA become effective.

The Company has also provided indemnities or similar commitments on standard commercial terms in the ordinary course of business.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

Legal and regulatory proceedings

The Company is subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of its business. The Company is also subject to regulatory oversight by numerous regulatory and other governmental agencies. The Company reviews its lawsuits, regulatory investigations, and other legal proceedings on an ongoing basis and provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. In accordance with such guidance, the Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the condensed consolidated financial statements.

In July and August 2021, three purported securities class actions were filed in the U.S. District Court for the Northern District of California against the Company, its directors, certain of its officers and employees, and certain venture capital and investment firms. The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act, in connection with the registration statement and prospectus filed in connection with the Direct Listing. In November 2021, these actions were consolidated and recaptioned as In re Coinbase Global Securities Litigation, and an amended complaint was filed. The Company disputes the claims in this matter and is vigorously defending against them. The plaintiff seeks, among other relief, unspecified compensatory damages, attorneys’ fees, and costs. Based on the preliminary nature of the proceedings in this matter, the outcome of this matter remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

In October 2021, a purported class action captioned Underwood et al. v. Coinbase Global, Inc., was filed in the U.S. District Court for the Southern District of New York against the Company alleging claims under Sections 5, 15(a)(1) and 29(b) of the Exchange Act and violations of certain California and Florida state statutes. On March 11, 2022, plaintiffs filed an amended complaint adding Coinbase, Inc. and Brian Armstrong as defendants and adding causes of action. Among other relief requested, the plaintiffs seek injunctive relief, unspecified damages, attorneys’ fees and costs. The Company and other defendants dispute the claims in this case and intend to vigorously defend against them. Based on the preliminary nature of the proceedings in this case, the outcome of this matter remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

In December 2021, a shareholder derivative suit captioned Shin v. Coinbase Global, Inc., was filed in New York state court against the Company and its directors, alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, and seeking unspecified damages and injunctive relief. The Company disputes the claims in this case and intends to vigorously defend against them. Based on the preliminary nature of the proceedings in this case, the outcome of this matter remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

The Company’s subsidiary, Coinbase, Inc., which holds a Bitlicense from the New York Department of Financial Services (“NYDFS”) and is therefore subject to examinations and investigations by the NYDFS, is currently subject to an investigation by the NYDFS relating to its compliance program including compliance with the Bank Secrecy Act and sanctions laws, cybersecurity, and customer support. Coinbase, Inc. is cooperating fully and has undertaken initial remedial measures, and may face additional remedial and other measures. Based on the ongoing nature of the investigation, the outcome of this matter remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

The Company has received investigative subpoenas from the SEC for documents and information about certain customer programs, operations, and intended future products, including the Company’s stablecoin and yield-generating products. Based on the ongoing nature of this matter, the outcome remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time.

Coinbase Global, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)

The Company believes the ultimate resolution of existing legal and regulatory investigation matters will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution of one or more of these matters may have a material adverse effect on the Company’s results of operations for a particular period, and future changes in circumstances or additional information could result in additional accruals or resolution in excess of established accruals, which could adversely affect the Company’s results of operations, potentially materially.

Tax regulation

Current promulgated tax rules related to crypto assets are unclear and require significant judgments to be made in interpretation of the law, including but not limited to the areas of income tax, information reporting, transaction level taxes and the withholding of tax at source. Additional legislation or guidance may be issued by U.S. and non-U.S. governing bodies that may differ significantly from the Company's practices or interpretation of the law, which could have unforeseen effects on the Company’s financial condition and results of operations, and accordingly, the related impact on the Company’s financial condition and results of operations is not estimable.

Previous: Cover and table of contents · Next: Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations