Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the accompanying notes thereto included elsewhere in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2021. The following discussion and analysis contain forward looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled Risk Factors in Part II, Item 1A of this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K. Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” and “Coinbase” refer to Coinbase Global, Inc. and its consolidated subsidiaries. The information contained on, or that can be accessed through, our website is not incorporated by reference into, and is not a part of, this Quarterly Report on Form 10-Q.

Executive Overview

This executive overview of the Management’s Discussion and Analysis (“MD&A”) highlights selected information and does not contain all of the information that is important to readers of this Quarterly Report on Form 10-Q.

The first quarter of 2022 continued a trend of both lower crypto asset prices and volatility that began in late 2021. These market conditions directly impacted our results for the first quarter of 2022. We believe these market conditions are not permanent and we remain focused on the long-term. In fact, we believe that our investment in our business now is especially critical as these periods of low volatility can provide the opportunity to focus more intently on product development than is possible during peak periods when we are more focused on meeting high demand.

During the first quarter of 2022, we made good progress on our product development, highlighted by the beta launch of Coinbase NFT in April 2022, growing adoption of Coinbase Wallet, expansion of our staking offering through the addition of Cardano, and hiring of over 1,200 full-time employees to help us build the future of crypto.

For the three months ended March 31, 2022, our total net revenue was $1.2 billion, including $1.0 billion in transaction revenue, and, as of March 31, 2022, MTUs were 9.2 million. Our financial results generally declined for the first quarter of 2022 as compared to the fourth quarter of 2021 due to lower trading volumes in connection with softer market conditions. Subscription and services revenues was $152 million, representing 13% of total net revenue. Due to lower transaction revenue and our commitment to invest heavily this year, our net loss was $430 million and Adjusted EBITDA was $20 million.

Key Business Metrics

In addition to the measures presented in our condensed consolidated financial statements, we use the following key business metrics to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions:


	Three Months Ended March 31,				% Change
	2022		2021

Verified Users(1) (in millions)	98		54		81	%
MTUs (in millions)	9.2		6.1		51
Assets on Platform (in billions)	$	256	$	223	15
Trading Volume (in billions)	$	309	$	335	(8)
Net (loss) income (in millions)	$	(430)	$	771	(156)
Adjusted EBITDA(2) (in millions)	$	20	$	1,117	(98)

(1)We discovered that the Verified Users metric previously disclosed as of March 31, 2021 did not exclude load testing users, which caused the metric to be overstated. This overstatement was not repeated in the Verified Users metric disclosed in subsequent quarters. Accordingly, the Verified Users metric as of March 31, 2021 has been revised from 56 million to 54 million.

(2)Please see the section titled Non-GAAP Financial Measure for a reconciliation of net (loss) income to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors.

Verified Users

We define “Verified Users” as all retail users, institutions, and ecosystem partners that have registered an account on our platform and confirmed either their email address or phone number, or that have established an account with a username on our non-custodial wallet application, as of the date of measurement. Verified Users are an indication of our scale. These customers have demonstrated an interest in our platform or direct intent to transact with crypto assets. Verified Users represent the top level of our customer acquisition funnel. Verified Users may overstate the number of unique customers who have registered an account on our platform as one customer may register for, and use, multiple accounts with different email addresses, phone numbers, or usernames.

Monthly Transacting Users

We define an “MTU” as a retail user who actively or passively transacts in one or more products on our platform at least once during the rolling 28-day period ending on the date of measurement. MTUs presented for the end of a quarter are the average of each month’s MTUs in each respective quarter. MTUs represent our transacting base of retail users who drive potential revenue generating transactions on our platform. MTUs engage in transactions that generate both Transaction revenue and Subscription and services revenue. Revenue generating transactions include active transactions, such as buying or selling crypto assets through our Invest product or passive transactions such as earning a staking reward. MTUs also engage in transactions that are non-revenue generating such as send and receive. MTUs may overstate the number of unique retail users due to differences in product architecture or user behavior.

Assets on Platform

We define “Assets on Platform” as the total U.S. dollar equivalent value of both fiat currency and crypto assets held or managed in digital wallets on our platform, including our custody services, calculated based on the market price on the date of measurement. Assets on Platform demonstrates the scale of balances held across our suite of products and services, the trust customers place in us to securely store their assets, and the underlying growth of the cryptoeconomy. Assets on Platform also represent our monetization opportunity for subscription products and services, including current products such as Custody, Stake, Borrow, and Lend. Assets on Platform generate fees that are recorded as Subscription and services revenue when customers engage with these products.

The value of Assets on Platform is driven by three factors – the price, quantity, and type of crypto assets held by customers on our platform. Changes in the price and quantity, particularly for Bitcoin and Ethereum, or type of crypto asset held on our platform, can result in the growth or decline in Assets on Platform in a particular period. Our Assets on Platform by asset are as follows:


	As of March 31,
	2022		2021
Assets on Platform:
Bitcoin	42	%	62	%
Ethereum	24	%	14	%
Other crypto assets	31	%	21	%
Fiat	4	%	3	%
Total(1)	100	%	100	%

(1)Figures presented above may not sum precisely due to rounding

During the three months ended March 31, 2022 and March 31, 2021, no asset other than Bitcoin and Ethereum individually represented more than 10% of our Assets on Platform.

Trading Volume

We define “Trading Volume” as the total U.S. dollar equivalent value of matched trades transacted between a buyer and seller through our platform during the period of measurement. Trading Volume represents the product of the quantity of asset transacted and the trade price at the time the transaction was executed. As trading activity directly impacts Transaction revenue, we believe this measure is a reflection of liquidity on our order books, trading health, and the underlying growth of the cryptoeconomy. Trading Volume on our platform is influenced by the price of crypto assets and Crypto Asset Volatility1. In periods of high crypto asset prices and Crypto Asset Volatility, we have experienced correspondingly high levels of Trading Volume on our platform. Our Trading Volume in future periods will depend on the relative availability and adoption of Bitcoin, Ethereum, and Other crypto assets.


	Three Months Ended March 31,
	2022			2021
Trading Volume (in billions):
Retail	$	74		$	120
Institutional	235			215
Total	$	309		$	335

Trading Volume by crypto asset:
Bitcoin	24		%	39		%
Ethereum	21			21
Other crypto assets	55			40
Total	100		%	100		%

Transaction revenue by crypto asset:
Bitcoin	25		%	41		%
Ethereum	23			19
Other crypto assets	52			40
Total	100		%	100		%

Crypto assets other than Bitcoin and Ethereum, or Other crypto assets, contributed a greater share of Trading Volume during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Approximately 55% of our total Trading Volume for the three months ended March 31, 2022, came from Other crypto assets, up from 40% for the three months ended March 31, 2021. This trend is consistent with the overall crypto market, where crypto assets other than Bitcoin and Ethereum comprised a larger percent of spot market trading volumes during the three months ended March 31, 2022 compared to the three months ended March 31, 2021. Additionally, we continue to add trading support for new crypto assets, which contributes to the increased trading concentration in Other crypto assets. As of March 31, 2022 and March 31, 2021, we supported trading for 166 and 51 crypto assets, respectively.

During the three months ended March 31, 2022 and March 31, 2021, no asset other than Bitcoin and Ethereum individually represented more than 10% of our Trading Volume or Transaction revenue, respectively.

1 “Crypto Asset Volatility” represents our internal measure of crypto volatility in the market relative to prior periods. The volatility of crypto assets is measured on an hourly basis (using 10 minute price intervals within each hour) for each crypto asset supported for trading on Coinbase, averaged over the applicable time period (quarterly), then weighted by each crypto asset’s share of total trading volume during the same time period across a select set of trading platforms, in addition to the Coinbase platform, that operate in similar markets including itBit, Bitfinex, Bitstamp, bitFlyer, Binance.US, Binance, Kraken, Gemini, Bittrex, and Poloniex.

Components of Results of Operations

Net revenue

Transaction revenue

We generate substantially all of our net revenue from transaction fees from trades that occur on our platform. The transaction fee earned is based on the price and quantity of the crypto asset that is bought, sold, or converted. Transaction revenue is recognized at the time the transaction is processed and is directly correlated with Trading Volume on our platform.

Subscription and services revenue

Subscription and services revenue primarily consists of:

Blockchain rewards: We derive Blockchain rewards 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. We earn Blockchain rewards in crypto assets.

Our Staking revenue is included within Blockchain rewards. Our blockchain services offered as part of Coinbase Cloud’s blockchain infrastructure solutions are included in Other subscription and services revenue.

Custodial fee revenue: We derive custodial fee revenue based on a percentage of the daily value of customer crypto assets that we hold under custody in our dedicated cold storage solution. The value of crypto assets held under custody is driven by the same factors as Assets on Platform - the quantity, price, and type of crypto asset.
Earn campaign revenue: We provide asset issuers with a platform to engage with our users through education videos and tasks where users can earn crypto assets that they learned about. We earn a commission based on the amount of crypto assets distributed to our users.
Interest income: We earn interest income on fiat funds under a revenue sharing arrangement and on customer custodial fiat funds held at certain third-party banks, which is calculated using the interest method. Our interest income is dependent on the balance of such fiat funds and the prevailing interest rate environment. We also earn interest income on loans granted to our retail and institutional users.
Other: Other subscription and services revenue primarily includes revenue from Coinbase Cloud and subscription licenses.

Other revenue

Other revenue includes the sale of crypto assets when we are the principal in the transaction. Periodically, as an accommodation to customers, we may fulfill customer transactions using our own crypto assets. We fulfill customer accommodation transactions using our own assets for orders that do not meet the minimum trade size for execution on our platform or to maintain customers’ trade execution and processing times during unanticipated system disruptions. We have custody and control of these crypto assets prior to the sale to the customer and record revenue at the point in time when the sale is processed. Accordingly, we record the total value of the sale as revenue and the cost of the crypto asset in Other operating expense, net. Transactions involving our sale of crypto assets represented less than 0.1% of our total revenue for the three months ended March 31, 2022.

Other revenue also includes interest income earned primarily on our corporate cash and cash equivalents. Interest income is calculated using the interest method and depends on the balance of cash and cash equivalents as well as the prevailing interest rate environment.

Operating expenses

Operating expenses consist of Transaction expense, Technology and development, Sales and marketing, General and administrative, and Other operating expense, net.

Transaction expense

Transaction expense includes costs incurred to operate our platform, process crypto asset trades, and perform wallet services. These costs include account verification fees, miner fees to process transactions on blockchain networks, fees paid to payment processors and other financial institutions for customer transaction activity, and crypto asset losses due to transaction reversals. Transaction expense also includes rewards paid to users for blockchain activities conducted by us, such as staking. Fixed-fee costs are expensed over the term of the contract and transaction-level costs are expensed as incurred.

Technology and development

Technology and development expenses include personnel-related expenses incurred in operating, maintaining, and enhancing our platform. These costs also include website hosting, infrastructure expenses, costs incurred in developing new products and services and the amortization of acquired developed technology.

Sales and marketing

Sales and marketing expenses primarily include costs related to customer acquisition, advertising and marketing programs, and personnel-related expenses. Sales and marketing costs are expensed as incurred.

General and administrative

General and administrative expenses include personnel-related expenses incurred to support our business, including legal, finance, compliance, human resources, customer support, executive, and other support operations. These costs also include software subscriptions for support services, facilities and equipment costs, depreciation, amortization of acquired customer relationship intangible assets, gains and losses on disposal of fixed assets, legal reserves and settlements, and other general overhead. General and administrative costs are expensed as incurred.

Other operating expense, net

Other operating expense, net includes impairment and realized gains on the sale of crypto assets, realized gains and losses resulting from the settlement of derivative instruments, and fair value gains and losses related to derivatives and derivatives designated in qualifying fair value hedge accounting relationships.

Other operating expense, net also includes cost of our crypto assets used to fulfill customer accommodation transactions. Periodically, as an accommodation to customers, we may fulfill customer transactions using our own crypto assets held for operating purposes. We have custody and control of the crypto assets prior to the sale to the customer. Accordingly, we record the total value of the sale in Other revenue and the cost of the crypto asset in Other operating expense, net.

Interest expense

Interest expense on debt includes coupon interest expense, as well as amortization of debt discounts and debt issuance costs.

Other expense (income), net

Other expense (income), net includes the following items:

gains and losses on investments, net, which consists primarily of realized and unrealized gains and losses from fair value adjustments on investments; and
realized impacts on foreign exchange resulting from the settlement of our foreign currency assets and liabilities as well unrealized impacts on foreign exchange resulting from remeasurement of transactions and monetary assets and liabilities denominated in non-functional currencies.

(Benefit from) provision for income taxes

(Benefit from) provision for income taxes includes income taxes related to foreign jurisdictions and U.S. federal and state income taxes.

Results of Operations

The following table summarizes the historical condensed consolidated statements of operations data:


	Three Months Ended March 31,
	2022		2021
	(in thousands)
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

The following table presents the components of the condensed consolidated statements of operations data as a percentage of total revenue:


	Three Months Ended March 31,
	2022		2021
	(as a % of total revenue)
Total revenue	100	%	100	%
Operating expenses:
Transaction expense	24		13
Technology and development	49		10
Sales and marketing	17		7
General and administrative	35		7

Other operating expense, net	22		9
Total operating expenses	148		46
Operating (loss) income	(48)		54
Interest expense	2		—
Other expense (income), net	2		—
(Loss) income before income taxes	(52)		54
(Benefit from) provision for income taxes	(15)		13
Net (loss) income	(37)	%	41	%

Comparison of the three months ended March 31, 2022 and 2021

Revenue


	Three Months Ended March 31,
	2022		2021		% Change
	(in thousands)
Transaction revenue	$	1,013,036	$	1,540,580	(34)	%
Subscription and services revenue	151,855		56,401		169
Other revenue	1,545		204,131		(99)
Total revenue	$	1,166,436	$	1,801,112	(35)

Transaction revenue for the three months ended March 31, 2022 decreased by $527.5 million or 34% compared to the three months ended March 31, 2021, due to the following:

Crypto Asset Volatility of 8.3 for the three months ended March 31, 2022, representing a decrease of 33% from the three months ended March 31, 2021. Trading Volume on our platform is correlated with Crypto Asset Volatility; and
a decrease in retail Trading Volume of 38%, due to a decrease in both the average price of Bitcoin and Other crypto assets.

A number of factors contribute to changes in crypto asset prices and Crypto Asset Volatility, including, but not limited to, changes in the supply and demand for a particular crypto asset, crypto market sentiment, macroeconomic factors, utility of a particular crypto asset, and idiosyncratic events.

Subscription and services revenue for the three months ended March 31, 2022 increased by $95.5 million or 169% compared to the three months ended March 31, 2021, due to the following:

an increase in Blockchain rewards of $72.6 million, mainly as a result of increased user participation in reward generating activities, including, predominantly Staking activities such as ETH 2.0 Staking which was launched in the second quarter of 2021;
an increase in participation and delegation revenue of $11.2 million due to growth in Coinbase Cloud; and
an increase in custodial fee revenue of $8.2 million, due to an increase in the average assets under custody of $17.5 billion over the same period. The growth in assets under custody was driven by new and existing customers and an increase of 40 assets supported by custody during the three months ended March 31, 2022.

Other revenue for the three months ended March 31, 2022 decreased by $202.6 million or 99%, compared to the three months ended March 31, 2021, due to a decrease in crypto assets sales revenue over the same period. We generated revenue from crypto asset sales where the transactions are fulfilled with our crypto assets to accommodate customers, primarily as a result of unanticipated system disruptions. For the three months ended March 31, 2022, we did not experience any unanticipated system disruptions compared to five unanticipated system disruptions for the three months ended March 31, 2021. The number of unanticipated system disruptions significantly declined over the same period as we continued to make significant investments in database and network infrastructure to support heightened trading volumes on our platform.

Operating expenses


	Three Months Ended March 31,
	2022		2021		% Change
	(in thousands)
Transaction expense	$	277,826	$	234,066	19	%
Technology and development	570,664		184,225		210
Sales and marketing	200,204		117,990		70
General and administrative	413,578		121,231		241

Other operating expense, net	258,627		155,887		66
Total operating expenses	$	1,720,899	$	813,399	112

Transaction expense for the three months ended March 31, 2022 increased by $43.8 million or 19%, compared to the three months ended March 31, 2021. Transaction expense as a percentage of net revenue was 23.8% and 14.7% during the three months ended March 31, 2022 and March 31, 2021, respectively.

The increase in Transaction expense for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was predominantly due to the following:

an increase of $59.4 million related to rewards paid or payable to users from blockchain activities such as staking; and
an increase of $18.5 million in transaction reversal losses; offset by
a decrease of $37.7 million related to miner fees driven by transaction volume decrease and lower blockchain network fees such as Ethereum gas prices.

Technology and development expenses for the three months ended March 31, 2022 increased by $386.4 million or 210%, compared to the three months ended March 31, 2021, predominantly due to the following:

an increase of $286.2 million in personnel-related expenses, including a $183.3 million increase in stock based compensation expense, due to a 162% increase in headcount growth and the issuance of equity instruments in conjunction with business combinations and
an increase of $75.0 million in software and service costs, driven by continued investment in our products and platform. We expect that these costs will continue to increase in the future as we scale our teams and deliver new products and services for the cryptoeconomy.

Sales and marketing expenses for the three months ended March 31, 2022 increased by $82.2 million or 70%, compared to the three months ended March 31, 2021. Sales and marketing as a percentage of net revenue was 17.2% and 7.4% during the three months ended March 31, 2022 and March 31, 2021, respectively.

The increase in Sales and marketing for the three months ended March 31, 2022, compared to the three months ended March 31, 2021, was due to the following:

an increase of $49.1 million predominantly due to offline advertising as well as conference and event sponsorships; and
an increase of $24.2 million in personnel-related expenses, including a $11.4 million increase in stock-based compensation, due to a 246% increase in headcount growth; offset by
an increase of $5.1 million in customer referral and promotion fees related to marketing initiatives such as sweepstakes and incentivized campaigns.

General and administrative expenses for the three months ended March 31, 2022, increased by $292.3 million, or 241%, compared to the three months ended March 31, 2021, predominantly driven by the following:

an increase of $121.9 million in personnel-related expenses, including a $52.8 million increase in stock-based compensation, due to a 239% increase in headcount growth;
an increase of $94.6 million in customer support costs related to contingent workforce and managed services due to business growth to support customer experience and compliance;
an increase of $21.1 million in equipment and furniture as well as software license cost related to an increase in headcount growth and business growth; and
an increase of $17.8 million in professional services including legal fees largely due to business expansion and consulting services related to litigation, regulatory and compliance.

Other operating expense, net for the three months ended March 31, 2022, increased by $102.7 million, or 66%, compared to the three months ended March 31, 2021, respectively, due to the following:

an increase of $227.1 million gross impairment charges on crypto assets held during the quarter, Impairment charges, net of any recoveries, amounted to $209.8 million which relate to the crypto assets still held as of March 31, 2022;
an increase of $47.8 million due to certain platform-related incidents and losses;
a decrease of $13.3 million in digital asset realized gains; offset by
a decrease of $185.9 million attributed to crypto assets sold in order to fulfill customer accommodation transactions primarily as a result of a decrease in the unanticipated system disruptions.

Interest expense


	Three Months Ended March 31,
	2022		2021		% Change
	(in thousands)
Interest expense	$	22,138	$	—	100	%

During the three months ended March 31, 2022, we had interest expense on debt of $22.1 million compared to zero for the three months ended March 31, 2021 due to our Convertible Notes issued in May 2021, our Senior Notes issued in September 2021 and short-term borrowings outstanding during the first quarter of 2022.

Other expense (income), net


	Three Months Ended March 31,
	2022		2021		% Change
	(in thousands)
Other expense (income), net	$	32,844	$	(8,953)	(467)	%

During the three months ended March 31, 2022, we had Other expense (income), net of $32.8 million loss compared to a $9.0 million gain for the three months ended March 31, 2021. The change of $41.8 million in losses is due to a net change in realized and unrealized losses from foreign exchange of $20.7 million and $10.3 million, respectively, due to the timing of Euro denominated intercompany settlements, and the absence of the remeasurement gain of $8.8 million during the three months ended March 31, 2021 related to our previously held investment in Bison Trails, as a result of the acquisition that occurred in February 2021.

(Benefit from) provision for income taxes


	Three Months Ended March 31,
	2022		2021		% Change
	(in thousands)
(Benefit from) provision for income taxes	$	(179,786)	$	225,203	**

** Percentage not meaningful.

The (benefit from) provision for income tax decreased by $405.0 million for the three months ended March 31, 2022 compared to the three months ended March 31, 2021. The reduction in tax was largely due to the decrease in pretax income and by the increase in tax benefits for certain stock-based compensation and research and development credits,

Non-GAAP Financial Measure

In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP measure, is useful in evaluating our operating performance. We use Adjusted EBITDA to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that Adjusted EBITDA may be helpful to investors because it provides consistency and comparability with past financial performance. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. Among other non-cash and non-recurring items, Adjusted EBITDA excludes stock-based compensation expense, which has recently been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy. In addition, other companies, including companies in our industry, may calculate similarly titled non-GAAP measures differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our non-GAAP financial measures as tools for comparison. A reconciliation is provided below for each non-GAAP financial measure to the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measures and the reconciliation of these non-GAAP financial measures to their most directly comparable GAAP financial measures, and not to rely on any single financial measure to evaluate our business

We calculate Adjusted EBITDA as net loss or income, adjusted to exclude provision for or benefit from income taxes, depreciation and amortization, interest expense, crypto asset borrowing costs, stock-based compensation expense, impairment, net, non-recurring Direct Listing expenses, unrealized gain or loss on foreign exchange, fair value gain or loss on derivatives and non-recurring legal reserves and related costs.

The following table provides a reconciliation of net (loss) income to Adjusted EBITDA:


	Three Months Ended March 31,
		2022		2021
		(in thousands)
Net (loss) income		$	(429,659)	$	771,463
Adjusted to exclude the following:
(Benefit from) provision for income taxes		(179,786)		225,203
Depreciation and amortization		31,580		10,922
Interest expense		22,138		—
Crypto asset borrowing costs		1,436		4,273
Stock-based compensation		352,141		104,628
Impairment, net(1)		210,997		841
Non-recurring Direct Listing expenses		—		4,160

Unrealized loss (gain) on foreign exchange		7,389		(2,869)
Fair value loss (gain) on derivatives		3,452		(2,800)

Legal reserves and related costs		—		1,500

Adjusted EBITDA		$	19,688	$	1,117,321

(1)Impairment, net represents impairment on crypto assets still held and intangible assets.

Liquidity and Capital Resources

Cash and Cash Equivalents, Restricted Cash and USDC

As of March 31, 2022, we had cash and cash equivalents of $6.1 billion, exclusive of restricted cash and customer custodial funds. Cash equivalents consisted primarily of cash deposits and money market funds denominated in U.S. dollars. As of March 31, 2022, we had restricted cash of $27.1 million which consisted primarily of amounts held in restricted bank accounts at certain third-party banks as security deposits or pledged as collateral to secure letters of credit.

As of March 31, 2022, we had $179.9 million of USDC, a stablecoin which can be redeemed one USDC for one U.S. dollar on demand. While not accounted for as cash or cash equivalent, we treat our USDC holdings as a liquidity resource.

Debt

In September 2021, we issued $2.0 billion in Senior Notes consisting of $1.0 billion of 2028 Senior Notes due on October 1, 2028 and $1.0 billion of 2031 Senior Notes due on October 1, 2031. In May 2021, we issued an aggregate of $1.44 billion of 2026 Convertible Notes that mature on June 1, 2026, unless converted, redeemed or repurchased on an earlier date. We periodically issue short-term debt to support certain business operations. See Notes 8. Accrued Expenses and Other Current Liabilities and 9. Indebtedness for further information regarding our short and long-term borrowings, respectively.

Crypto Assets

In August 2021, we announced our plans to invest $500 million as well as 10% of our quarterly net income into a diversified portfolio of crypto assets. Our investments will be deployed over a multi-quarter window. We continue to execute all trades away from our crypto asset trading platform to avoid any conflict of interest with our customers. We may increase or decrease our allocation over time as the cryptoeconomy matures.

As of March 31, 2022, we held $765.4 million of crypto assets for investment and operating purposes at impaired cost. Our future earnings and cash flows will be impacted when we choose to monetize our crypto assets and the variability of our earnings will be dependent on the future fair value of such crypto assets. We have limited ability to predict whether the sale of crypto assets received from airdrops or forks will be material to our future earnings, which is dependent on the future market liquidity, viability and fair value of such crypto assets. Our current policy is not to monetize unsupported forks or airdrops held on our platform. Crypto assets received through airdrops and forks, at the time of the airdrop or fork and at the end of the periods presented, are not material to our financial statements.

As of March 31, 2022 and December 31, 2021, the cost basis and fair value of our crypto assets held at impaired cost, was as follows:


	March 31,				December 31,
	2022				2021
	Cost(1)		Fair value(2)		Cost(1)		Fair value(2)
	(in millions)
Crypto assets held as investments:
Bitcoin	$	173.7	$	376.4	$	87.9	$	265.8
Ethereum	165.4		312.7		46.1		167.1
Other	148.6		354.7		75.4		263.1
Total crypto assets held as investments	487.7		1,043.8		209.4		696.0

Crypto assets held for operating purposes:
Bitcoin	33.6		41.1		95.5		97.9
Ethereum	60.3		81.2		58.2		75.4
Other	183.8		256.6		203.4		267.5
Total crypto assets held for operating purposes	277.7		378.9		357.1		440.8
Total crypto assets held	$	765.4	$	1,422.7	$	566.5	$	1,136.8

(1)Cost amounts shown are net of impairment recognized.

(2)The fair value of crypto assets held is based on quoted market prices for one unit of each crypto asset reported on our platform at 11:59 pm Coordinated Universal Time (UTC) on the last day of the respective period multiplied by the quantity of each crypto asset held.

We view our crypto asset investments as long term holdings and we do not plan to engage in regular trading of crypto assets. During times of instability in the market of crypto assets, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets are less liquid than our existing cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. Customer accommodations are fulfilled with crypto assets held for operational purposes. We recognized $141.7 million of impairment expense on our crypto asset investment portfolio for the three months ended March 31, 2022.

Cash Requirements and Contractual Obligations

Certain jurisdictions where we operate require us to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100% of the aggregate amount of all custodial funds due to customers. Depending on the jurisdiction, eligible liquid assets can include cash and cash equivalents, customer custodial funds, and in-transit funds receivable. As of March 31, 2022 and December 31, 2021, our eligible liquid assets were greater than the aggregate amount of custodial funds due to customers. We are also required to hold corporate liquid assets at our subsidiaries to meet capital requirements established by our regulators based on the value of crypto assets held in custody.

Our cash flow from operating activities may materially fluctuate from period-to-period based on movement within our custodial funds due to customer liability. Since our customer custodial funds are included in cash and cash equivalents, any large fluctuations in the related liability will directly impact our cash flow from operating activities. In the short term, we believe our existing cash and cash equivalents will be sufficient for at least the next 12 months to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements. In the long term, our ability to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements, will depend on many factors, including market acceptance of crypto assets and blockchain technology, our growth, our ability to attract and retain customers on our platform, the continuing market acceptance of our products and services, the introduction of new subscription products and services on our platform, expansion of sales and marketing activities, and overall economic conditions. We anticipate satisfying our short-term cash requirements with our existing cash and cash equivalents and may satisfy our long-term cash requirements with cash and cash equivalents on hand or with proceeds from a future equity or debt financing.

To the extent that current and anticipated future sources of liquidity are insufficient to fund our future business activities and cash and other requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations. In the event that additional financing is required from outside sources, there is a possibility we may not be able to raise it on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, operating results, and financial condition could be adversely affected.

Our material cash requirements and contractual obligations arising in the normal course of business primarily consist of operating lease commitments, non-cancelable purchase obligations, debt and related interest payments, and income taxes. With respect to operating lease commitments, which consists of operating leases for corporate offices as of March 31, 2022, the total amount of lease payments due is $105.4 million, with $27.3 million due prior to December 31, 2022. With respect to non-cancelable purchase obligations, which consists of committed spend relating to advertising and technology, as of March 31, 2022, the total amount due was $394.1 million, with $316.3 million due prior to December 31, 2022. See Notes 8. Accrued Expenses and Other Current Liabilities, 9. Indebtedness and 14. Income Taxes to the condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for further information relating to debt and income taxes as of March 31, 2022.

Cash flows


	Three Months Ended March 31,
	2022		2021
	(in thousands)
Net cash (used in) provided by operating activities	$	(830,114)	$	3,411,765
Net cash used in investing activities	(691,591)		(37,910)
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
Change in customer custodial funds	$	(502,848)	$	2,528,384

Operating activities

We assess our cash flow from operating activities by adjusting for the change in customer custodial funds. We use this as a more accurate indicator of our cash growth and our ability to invest in our infrastructure and people to achieve our strategic objectives.

Net cash used in operating activities was $830.1 million for the three months ended March 31, 2022, of which $738.8 million related to cash from the change in custodial funds due to customers. Our net cash used in operating activities, other than from custodial funds due to customers, reflected a Net loss of $429.7 million, partially offset by non-cash adjustments of $412.6 million, which were driven by benefits from deferred income taxes and realized gains on crypto assets driven by net crypto assets received from operating activities. This was partially offset by stock-based compensation expense, impairment expense, depreciation and amortization expense, non-cash lease expense and unrealized losses on foreign exchange. In addition to these changes were changes in operating assets and liabilities of $74.3 million.

Net cash provided by operating activities was $3.4 billion for the three months ended March 31, 2021, of which $2.4 billion related to cash from the change in custodial funds due to customers. Our net cash provided by operating activities, other than from custodial funds due to customers, reflected net income of $771.5 million, non-cash adjustments of $55.2 million, which were driven by $104.6 million in stock-based compensation, $10.9 million in depreciation and amortization, and $9.0 million in non-cash lease expense. This was partially offset by $32.8 million in realized gains on crypto assets, $25.1 million of net crypto assets received from operating activities and $2.8 million in fair value derivative adjustments. In addition to these changes were changes in operating assets and liabilities, other than custodial funds due to customers, of $230.0 million.

Investing activities

Net cash used in investing activities of $691.6 million for the three months ended March 31, 2022 was due to $470.3 million in net outflow for the purchase and sale of crypto assets, $186.2 million in net cash paid in the Unbound Security and FairXchange acquisitions, $25.8 million in investments of companies and technologies and $9.1 million in capitalized internal-use software development costs.

Net cash used in investing activities was $37.9 million for the three months ended March 31, 2021 primarily related to net cash paid in the Bison Trails acquisition of $16.5 million, $9.2 million in investments of companies and technologies, $7.8 million in net outflow from the purchase and sale of crypto assets, and $4.4 million in capitalized internal-use software development costs.

Financing activities

Net cash provided by financing activities of $13.4 million for the three months ended March 31, 2022, was due to $149.4 million of proceeds received from the issuance of short-term borrowings, net of issuance costs, $16.9 million of proceeds from the issuance of common stock from stock option exercises, net of repurchases, and $9.0 million of proceeds received under the employee stock purchase plan. This was partially offset by $141.8 million of taxes paid related to net share settlements of equity awards and $20.0 million in repayments of short-term borrowings.

Net cash provided by financing activities of $59.8 million for the three months ended March 31, 2021 was primarily due to $59.4 million of proceeds from the issuance of common stock from stock option exercises.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with GAAP. In preparing the condensed consolidated financial statements, we make estimates and judgments that affect the reported amounts of assets, liabilities, stockholders’ equity, revenue, expenses, and related disclosures. We re-evaluate our estimates on an on-going basis. Our estimates are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Because of the uncertainty inherent in these matters, actual results may differ from these estimates and could differ based upon other assumptions or conditions.

Except as described in Note 2. Summary of Significant Accounting Policies, of the Notes to the condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates disclosed in our Annual Report on Form 10-K. which was filed with the Securities and Exchange Commission (the “SEC”) on February 25, 2022.

Recent Accounting Pronouncements

See Note 2. Significant Accounting Policies, of the Notes to the condensed consolidated financial statements in the section titled in Part I, Item 1 of this Quarterly Report on Form 10-Q for a discussion about new accounting pronouncements adopted and not yet adopted as of the date of this report.

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