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 second quarter of 2022 continued a trend of lower crypto asset prices and trading volume that began in late 2021. Our results were impacted by a shift in customer and market activity, driven by macroeconomic and crypto credit factors. We do not believe that these market conditions are permanent. We continue to take a long-term view and remain focused on building for the future.

On the product side, we are focused on our highest priority product opportunities of Coinbase Retail App, Coinbase Prime, Staking, Developer Products under Coinbase Cloud, and Web3.

For the three and six months ended June 30, 2022, our total net revenue was $802.6 million and $2.0 billion, respectively, including $655.2 million and $1.7 billion in transaction revenue, respectively.

Subscription and services revenues was $147.4 million and $299.2 million for three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2022, our net loss was $1.1 billion and $1.5 billion, respectively, and Adjusted EBITDA was negative $151.1 million and negative $131.4 million, respectively.

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 June 30,												% Change						Six Months Ended June 30,												% Change
			2022						2021									2022						2021
Verified Users (in millions)			103						68						51		%				103						68						51		%
MTUs(1) (in millions)			9.0						8.8						2		%				9.1						7.5						21		%
Assets on Platform (in billions)			$	96					$	180					(47)		%				$	96					$	180					(47)		%
Trading Volume (in billions)			$	217					$	462					(53)		%				$	526					$	796					(34)		%
Net (loss) income (in millions)			$	(1,094)					$	1,606					(168)		%				$	(1,523)					$	2,378					(164)		%
Adjusted EBITDA(2) (in millions)			$	(151)					$	1,150					(113)		%				$	(131)					$	2,267					(106)		%

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(1)We recently identified an issue in the calculation of our Monthly Transacting Users (“MTU”) metric related to the complexity in measuring users and activity in self-custodial products (notably Coinbase Wallet) that resulted in the overstatement of the MTU figures previously disclosed as of September 30, 2021 and December 31, 2021. Accordingly, the MTU metric as of September 30, 2021 and December 31, 2021 will be revised from 7.4 million to 7.3 million and from 11.4 million to 11.2 million, respectively, to reflect our estimate of the overstatement. These figures are not disclosed in this Quarterly Report on Form 10-Q, but we intend to update them in subsequent filings in which such figures are reported.

(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 previously defined “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. As a result of our adoption of SAB 121 as of June 30, 2022, which requires an entity to recognize a liability for the obligation to safeguard a users’ crypto assets and a corresponding customer asset in its condensed consolidated balance sheets, we have updated our definition of Assets on Platform as the aggregate of “Customer crypto liabilities” and “Customer custodial cash liabilities,” each as set forth on our condensed consolidated balance sheets. We updated this definition so that Assets on Platform will directly correspond to the amounts that we recognize with respect to custodied crypto assets and fiat for financial reporting purposes in our condensed consolidated balance sheets. Importantly, the updated definition of Assets on Platform does not result in any changes with respect to the figures reported in prior periods.

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 increase or decrease in Assets on Platform in a particular period. Our Assets on Platform by asset are as follows:

			As of June 30,												% Change
			2022						2021
Assets on Platform:
Bitcoin			44		%				47		%				(6)		%
Ethereum			20		%				24		%				(17)
Other crypto assets			29		%				25		%				16
Fiat			7		%				5		%				40
Total(1)			100		%				100		%				—

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

As of June 30, 2022 and June 30, 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. Generally, Trading Volume on our platform is primarily 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 June 30,												% Change						Six Months Ended June 30,												% Change
			2022						2021									2022						2021
Trading Volume (in billions):
Retail			$	46					$	145					(68)		%				$	121					$	265					(54)		%
Institutional			171						317						(46)						405						531						(24)
Total			$	217					$	462					(53)						$	526					$	796					(34)
Trading Volume by crypto asset:
Bitcoin			31		%				24		%				29						27		%				31		%				(13)
Ethereum			22						26						(15)						21						24						(13)
Other crypto assets			47						50						(6)						52						45						16
Total			100		%				100		%										100		%				100		%
Transaction revenue by crypto asset:
Bitcoin			31		%				26		%				19						28		%				33		%				(15)
Ethereum			22						26						(15)						22						23						(4)
Other crypto assets			47						48						(2)						50						44						14
Total			100		%				100		%										100		%				100		%

Trading Volume decreased 53% and 34% for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively. The decrease in Trading Volume was driven by steep declines in both the average crypto asset prices and total crypto spot market volumes associated with macroeconomic challenges during the second quarter of 2022. In addition, Crypto Asset Volatility decreased 32% and 31% for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively.

During the three and six months ended June 30, 2022 and June 30, 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 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 the majority 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 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, which includes staking application, delegation, and infrastructure services, subscription revenue from Coinbase One, and revenue from other 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 1% of our total revenue for the three and six months ended June 30, 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.

Restructuring

Restructuring expenses primarily consist of non-recurring costs and severance for employees related to reductions in the Company’s headcount during the three and six months ended June 30, 2022. For more information, see Note 3. Restructuring of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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;

• 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; and

• impairment recognized on certain strategic equity investments in privately held companies without readily determinable fair values.

Benefit from income taxes

Benefit from 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 June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(in thousands)
Revenue:
Net revenue			$	802,603					$	2,033,011					$	1,967,494					$	3,629,991
Other revenue			5,722						194,951						7,267						399,082
Total revenue			808,325						2,227,962						1,974,761						4,029,073
Operating expenses:
Transaction expense			167,187						335,426						445,013						569,492
Technology and development			609,249						291,461						1,179,913						475,686
Sales and marketing			140,894						195,733						341,098						313,722
General and administrative			470,169						248,195						883,747						369,426
Restructuring			42,453						—						42,453						—
Other operating expense, net			422,762						282,422						681,389						438,309
Total operating expenses			1,852,714						1,353,237						3,573,613						2,166,635
Operating (loss) income			(1,044,389)						874,725						(1,598,852)						1,862,438
Interest expense			23,656						748						45,794						748
Other expense (income), net			172,524						5,096						205,368						(3,857)
(Loss) income before income taxes			(1,240,569)						868,881						(1,850,014)						1,865,547
Benefit from income taxes			(146,915)						(737,468)						(326,701)						(512,265)
Net (loss) income			$	(1,093,654)					$	1,606,349					$	(1,523,313)					$	2,377,812

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

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
			(as a % of total revenue) (1)
Total revenue			100		%				100		%				100		%				100		%
Operating expenses:
Transaction expense			21						15						23						14
Technology and development			75						13						60						12
Sales and marketing			17						9						17						8
General and administrative			58						11						45						9
Restructuring			5						—						2						—
Other operating expense, net			52						13						35						11
Total operating expenses			229						61						181						54
Operating (loss) income			(129)						39						(81)						46
Interest expense			3						—						2						—
Other expense (income), net			21						—						10						—
(Loss) income before income taxes			(153)						39						(94)						46
Benefit from income taxes			(18)						(33)						(17)						(13)
Net (loss) income			(135)		%				72		%				(77)		%				59		%

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

Comparison of the three and six months ended June 30, 2022 and 2021

Revenue

			Three Months Ended June 30,																		Six Months Ended June 30,
			2022						2021						% Change						2022						2021						% Change
			(in thousands)																		(in thousands)
Transaction revenue			$	655,213					$	1,930,382					(66)		%				$	1,668,250					$	3,470,961					(52)		%
Subscription and services revenue			147,390						102,629						44						299,244						159,030						88
Other revenue			5,722						194,951						(97)						7,267						399,082						(98)
Total revenue			$	808,325					$	2,227,962					(64)						$	1,974,761					$	4,029,073					(51)

Transaction revenue for the three and six months ended June 30, 2022 decreased by $1.3 billion and $1.8 billion compared to the three and six months ended June 30, 2021, respectively, due to the following:

• Decrease in retail Trading Volume of 68% and 54% for the three and six months ended June 30, 2022, respectively, due to a decrease in the crypto market capitalization including the average crypto asset prices; and

• Crypto Asset Volatility of 9.28 and 8.86 for the three and six months ended June 30, 2022, respectively, representing a decrease of 32% and 31% from the three and six months ended June 30, 2021. Trading Volume on our platform is correlated with Crypto Asset Volatility.

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 and six months ended June 30, 2022 increased by $44.8 million and $140.2 million compared to the three and six months ended June 30, 2021, respectively, due to the following:

• an increase in Blockchain rewards of $34.0 million and $106.6 million for the three and six months ended June 30, 2022, respectively, mainly as a result of increased user participation in reward-generating activities such as staking;

• an increase in interest income of $26.0 million and $33.2 million for the three and six months ended June 30, 2022, respectively, predominantly due to an increase in federal interest rates on both interest bearing custodial fiat funds held and higher USDC due to increased customer activity;

• an increase in other subscription and services revenue of $8.7 million and $21.4 million for the three and six months ended June 30, 2022, respectively, predominantly due to subscription fees for Coinbase One which was launched in the fourth quarter of 2021, as well as an increase in participation and delegation revenue for the six months ended June 30, 2022; offset by

• a decrease in earn campaign revenue of $14.5 million and $19.7 million for the three and six months ended June 30, 2022, respectively, driven by a decrease in both the number of active Earn campaigns as well as in the amounts allocated by asset issuers for distribution over the same periods; and

• a decrease in custodial fee revenue of $9.5 million and $1.3 million for the three and six months June 30, 2022, respectively, due to a decrease in the average assets under custody of $34.2 billion and $8.4 billion over the same periods. The decline in assets under custody was primarily driven by a decrease in the price of crypto assets under custody over the same periods.

Other revenue for the three and six months ended June 30, 2022 decreased by $189.2 million and $391.8 million, respectively, compared to the three and six months ended June 30, 2021, due to a decrease in crypto assets sales revenue over the same period. A system disruption which occurred on May 19, 2021 as a result of an unprecedented short term spike in Trading Volume was primarily responsible for the decrease in crypto assets sales revenue over the same period.

We generate 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 and six months ended June 30, 2022, we did not experience any unanticipated system disruptions with material impact to our financial results compared to four and nine unanticipated system disruptions for the three and six months ended June 30, 2021, respectively. The number of unanticipated system disruptions declined during the three and six months ended June 30, 2022 as we continued to make significant investments in database and network infrastructure to support trading volumes on our platform.

Operating expenses

			Three Months Ended June 30,																		Six Months Ended June 30,
			2022						2021						% Change						2022						2021						% Change
			(in thousands)																		(in thousands)
Transaction expense			$	167,187					$	335,426					(50)		%				$	445,013					$	569,492					(22)		%
Technology and development			609,249						291,461						109						1,179,913						475,686						148
Sales and marketing			140,894						195,733						(28)						341,098						313,722						9
General and administrative			470,169						248,195						89						883,747						369,426						139
Restructuring			42,453						—						100						42,453						—						100
Other operating expense, net			422,762						282,422						50						681,389						438,309						55
Total operating expenses			$	1,852,714					$	1,353,237					37						$	3,573,613					$	2,166,635					65

Transaction expense for the three and six months ended June 30, 2022 decreased by $168.2 million and $124.5 million, compared to the three and six months ended June 30, 2021, respectively. Transaction expense as a percentage of net revenue was 20.8% and 16.5% during the three months ended June 30, 2022 and 2021, respectively, and 22.6% and 15.7% during the six months ended June 30, 2022 and 2021, respectively.

The decrease in Transaction expense for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, was due to the following:

• a decrease of $119.7 million and $157.4 million for three and six months ended June 30, 2022, respectively, related to miner fees driven by a decrease in blockchain transmission volume, both related to customer withdrawals and corporate wallet movements, and lower blockchain network fees such as Ethereum gas prices;

• a decrease of $49.2 million and $46.9 million for three and six months ended June 30, 2022, respectively, related to payment processing fees from lower settled trading volume;

• a decrease of $32.3 million and $13.8 million for three and six months ended June 30, 2022, respectively, in transaction reversal losses due to lower transaction volume; offset by

• an increase of $30.6 million and $90.0 million for three and six months ended June 30, 2022, respectively, related to rewards paid or payable to users from blockchain activities such as staking.

Technology and development expenses for the three and six months ended June 30, 2022 increased by $317.8 million and $704.2 million, respectively, compared to the three and six months ended June 30, 2021, due to the following:

• an increase of $172.4 million and $458.6 million for the three and six months ended June 30, 2022, respectively, in personnel-related expenses, including a $129.7 million and $313.0 million increase in stock-based compensation expense, due to a 135% and 147% increase in average headcount and the issuance of equity instruments in conjunction with business combinations;

• an increase of $84.0 million and $159.0 million for the three and six months ended June 30, 2022, respectively, in software and service costs, driven by continued investment in our products and platform; and

• an increase of $24.3 million and $40.2 million for the three and six months ended June 30, 2022, respectively, related to amortization expense related to capitalized software and assembled workforce.

Sales and marketing expenses for the three and six months ended June 30, 2022 decreased by $54.8 million and increased by $27.4 million compared to the three and six months ended June 30, 2021, respectively. Sales and marketing as a percentage of net revenue was 17.6% and 9.6% during the three months ended June 30, 2022 and 2021, respectively, and 17.3% and 8.6% during the six months ended June 30, 2022 and 2021, respectively.

The decrease and increase in Sales and marketing for the three and six months ended June 30, 2022, compared to the three and six months ended June 30, 2021, was largely due to the following:

• an increase of $20.3 million and $44.5 million in personnel-related expenses for the three and six months ended June 30, 2022, including a $12.7 million and $24.1 million increase in stock-based compensation expense, due to a 178% and 207% increase in average headcount;

• an increase of $25.6 million and $39.1 million for the three and six months ended June 30, 2022, respectively, in conference events and sponsorships; offset by

• a decrease of $97.5 million and $61.7 million for the three and six months ended June 30, 2022, respectively, in digital and offline advertising; and

• a decrease of $11.7 million and $6.6 million for the three and six months ended June 30, 2022, respectively, in customer referral and promotion fees related to marketing initiatives such as sweepstakes and incentivized campaigns.

General and administrative expenses for the three and six months ended June 30, 2022 increased by $222.0 million and $514.3 million compared to the three and six months ended June 30, 2021, respectively, predominantly driven by the following:

• an increase of $121.5 million and $257.6 million in customer support costs for the three and six months ended June 30, 2022, respectively, due to an increase in contingent workforce and managed services to support customer experience and compliance, as a result of increased capacity needs. Our capacity needs may increase in periods following higher trading volumes;

• an increase of $59.8 million and $143.3 million in personnel-related expenses excluding customer support for the three and six months ended June 30, 2022, respectively, including a $45.0 million and $87.7 million increase in stock-based compensation, due to a 121% and 128% increase in average headcount;

• an increase of $29.9 million and $47.7 million in professional services for the three and six months ended June 30, 2022, respectively, largely due to increased business process and acquisition consulting services, as well as higher legal fees related to litigation, regulatory and compliance; and

• an increase of $7.5 million and $15.0 million in software license costs for the three and six months ended June 30, 2022, respectively, to support business, security and risk applications; offset by

• a decrease of $39.2 million in direct listing costs associated with our direct public listing in the second quarter of 2021.

Restructuring expenses were $42.5 million for the three and six months ended June 30, 2022, driven by separation pay and other post-employment benefits related to the workforce reduction in June 2022. There were no restructuring expenses for the three and six months ended June 30, 2021.

Other operating expense, net for the three and six months ended June 30, 2022 increased by $140.3 million and $243.1 million compared to the three and six months ended June 30, 2021, respectively, due to the following:

• an increase of $260.4 million and $487.5 million for the three and six months ended June 30, 2022, respectively, related to gross impairment charges on crypto assets held during the quarter. Impairment charges, net of any recoveries, amounted to $377.0 million and $586.8 million during the three and six months ended June 30, 2022, respectively, which relate to the crypto assets still held as of June 30, 2022;

• an increase of $45.4 million for the six months ended June 30, 2022 due to certain platform-related incidents and losses; the incident losses expense remained flat for the three months ended June 30, 2022 as compared to June 30, 2021; offset by

• a decrease of $178.9 million and $364.8 million for the three and six months ended June 30, 2022, respectively, attributed to the decrease in the crypto assets sold in order to fulfill customer accommodation transactions, primarily as a result of a decrease in the unanticipated system disruptions over the same period; and

• a decrease of $61.6 million and $74.9 million for the three and six months ended June 30, 2022, respectively, in digital asset realized gains.

Interest expense

			Three Months Ended June 30,																		Six Months Ended June 30,
			2022						2021						% Change						2022						2021						% Change
			(in thousands)																		(in thousands)
Interest expense			$	23,656					$	748					3063		%				$	45,794					$	748					6022		%

During the three and six months ended June 30, 2022, we had interest expense on debt of $23.7 million and $45.8 million compared to $0.7 million for the three and six months ended June 30, 2021, respectively, due to our Convertible Notes issued in May 2021, our Senior Notes issued in September 2021 and short-term borrowings outstanding during the first six months of 2022.

Other expense (income), net

			Three Months Ended June 30,																		Six Months Ended June 30,
			2022						2021						% Change						2022						2021						% Change
			(in thousands)																		(in thousands)
Other expense (income), net			$	172,524					$	5,096					3285		%				$	205,368					$	(3,857)					5425		%

Other expense (income), net for the three and six months ended June 30, 2022 increased by $167.4 million and $209.2 million compared to the three and six months ended June 30, 2021, respectively, due to the following:

• an increase in net unrealized and realized losses related to foreign exchange of $96.9 million and $128.0 million for the three and six months ended June 30, 2022, respectively, predominantly due to the timing of Euro denominated intercompany settlements and depreciation of the Euro and British Pound against the U.S. dollar;

• an increase in impairment expense recognized on certain strategic equity investments of $69.3 million for the three and six months ended June 30, 2022; and

• an increase in net realized and unrealized losses on investments of $4.3 million and $14.5 million for the three and six months ended June 30, 2022, respectively, primarily due to the remeasurement gain of $8.8 million during the six months ended June 30, 2021 related to our previously held investment in Bison Trails, as a result of the acquisition that occurred in February 2021; offset by

• a remeasurement gain of $8.2 million related to a contingent consideration arrangement recognized during the three and six months ended June 30, 2022.

Benefit from income taxes

			Three Months Ended June 30,																		Six Months Ended June 30,
			2022						2021						% Change						2022						2021						% Change
			(in thousands)																		(in thousands)
Benefit from income taxes			$	(146,915)					$	(737,468)					(80)		%				$	(326,701)					$	(512,265)					(36)		%

The benefit from income taxes decreased by $590.6 million and $185.6 million for the three and six months ended June 30, 2022 compared to the three and six months ended June 30, 2021, respectively. The benefit from income taxes decreased due to the reduction in certain stock-based compensation and research and development credits, and a valuation allowance recorded on impairment charges, partially offset by tax benefits on pretax loss during the three and six months ended June 30, 2022.

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 benefit from income taxes, depreciation and amortization, interest expense, crypto asset borrowing costs, stock-based compensation expense, crypto asset impairment, net, other impairment, impairment on investments, non-recurring Direct Listing expenses, restructuring, unrealized loss on foreign exchange, fair value gain or loss on derivatives, non-recurring legal reserves and related costs, and other adjustments, net.

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

									Three Months Ended June 30,												Six Months Ended June 30,
															2022						2021						2022						2021
															(in thousands)
Net (loss) income															$	(1,093,654)					$	1,606,349					$	(1,523,313)					$	2,377,812
Adjusted to exclude the following:
Benefit from income taxes															(146,915)						(737,468)						(326,701)						(512,265)
Depreciation and amortization															42,027						12,612						73,607						23,534
Interest expense															23,656						748						45,794						748
Crypto asset borrowing costs															1,566						2,925						3,002						7,198
Stock-based compensation															391,496						189,335						743,637						293,963
Crypto asset impairment, net(1)															377,005						57,343						586,823						58,184
Impairment on investments															69,289						—						69,289						—
Other impairment(2)															6,770						—						7,949						—
Non-recurring Direct Listing expenses															—						35,000						—						39,160
Restructuring															42,453						—						42,453						—
Unrealized loss on foreign exchange															107,683						5,261						115,072						2,392
Fair value (gain) loss on derivatives															(2,500)						(22,415)						952						(25,215)
Legal reserves and related costs															14,250						—						14,250						1,500
Other adjustments, net(3)															15,797						—						15,797						—
Adjusted EBITDA															$	(151,077)					$	1,149,690					$	(131,389)					$	2,267,011

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(1)Crypto asset impairment, net represents impairment on crypto assets still held.

(2)Other impairment represents impairment on Intangible assets, net of $3.2 million and $4.4 million for the three and six months ended June 30, 2022, respectively, and impairment on Property and equipment, net of $3.6 million for the three and six months ended June 30, 2022, respectively.

(3)Other adjustments, net includes $12.5 million pertaining to value-added taxes (VAT), $11.5 million associated with payments made on rescinded employment offers, offset by an unrealized gain of $8.2 million related to a contingent consideration arrangement.

Liquidity and Capital Resources

Cash and Cash Equivalents, Restricted Cash and USDC

As of June 30, 2022, we had cash and cash equivalents of $5.7 billion, exclusive of restricted cash and customer custodial cash. As of June 30, 2022 and December 31, 2021, our cash and cash equivalents, restricted cash, and USDC balance consisted of the following (in millions):

			June 30,						December 31,
			2022						2021
Cash and cash equivalents:
Cash equivalents(1)			$	2,773.1					$	4,813.6
Cash held at banks			2,740.1						2,141.0
Cash held at venues			168.9						168.9
Total Cash and cash equivalents			$	5,682.1					$	7,123.5
Restricted cash(2)			$	29.0					$	31.0
USDC(3)			$	361.7					$	100.1

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(1) Cash equivalents consists of money market funds primarily denominated in U.S. dollars.

(2) Restricted cash consists 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.

(3) USDC is a stablecoin which can be redeemed one USDC for one U.S. dollar on demand. While not accounted for as cash or cash equivalents, 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 10. Accrued Expenses and Other Current Liabilities and 11*. Indebtedness* of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information regarding our short and long-term borrowings, respectively.

In June 2022, Moody’s Investors Service (“Moody’s”) announced a downgrade of our Corporate Family Rating (CFR) to Ba3 from Ba2 and downgraded our guaranteed senior unsecured notes to Ba2 from Ba1. The ratings were placed under review for further downgrade. In addition, S&P Global Ratings revised their outlook to negative from stable.

Crypto Assets

Our crypto asset investment policy allows us to invest up to 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 of June 30, 2022, we held $403.4 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 June 30, 2022 and December 31, 2021, the cost basis and fair value of our crypto assets held at impaired cost was as follows:

			June 30,												December 31,
			2022												2021
			Cost**(1)**						Fair value**(2)**						Cost**(1)**						Fair value**(2)**
			(in millions)
Crypto assets held as investments:
Bitcoin			$	112.4					$	173.6					$	87.9					$	265.8
Ethereum			98.6						135.4						46.1						167.1
Other			78.7						118.8						75.4						263.1
Total crypto assets held as investments			289.7						427.8						209.4						696.0
Crypto assets held for operating purposes:
Bitcoin			13.5						19.1						95.5						97.9
Ethereum			16.1						16.1						58.2						75.4
Other			84.1						90.0						203.4						267.5
Total crypto assets held for operating purposes			113.7						125.2						357.1						440.8
Total crypto assets held			$	403.4					$	553.0					$	566.5					$	1,136.8

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(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 and corporate expenses denominated in crypto assets are fulfilled with crypto assets held for operational purposes. We recognized $295.3 million and $436.3 million of impairment expense on our crypto asset investment portfolio for the three and six months ended June 30, 2022, respectively.

Customer crypto assets and liabilities

The Company safeguards customer crypto assets and the associated keys and is obligated to safeguard them from loss, theft, or other misuse. In accordance with recently adopted guidance, SAB 121, we record customer crypto assets, as well as corresponding customer crypto assets on the condensed consolidated balance sheets, at fair value. See Note 8. Customer assets and liabilities to the condensed consolidated financial statements included in Part 1. Item 1 of this Quarterly Report on Form 10-Q, for further information as of June 30, 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 customer custodial cash liabilities. Depending on the jurisdiction, eligible liquid assets can include cash and cash equivalents, customer custodial cash, and in-transit funds receivable. As of June 30, 2022 and December 31, 2021, our eligible liquid assets were greater than the aggregate amount of customer custodial cash liabilities. 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 customer custodial cash liabilities. Since our customer custodial cash is included in our cash, cash equivalents, and restricted cash balance on our statements of cash flows, any large fluctuations in the related liability will directly impact our cash flow from operating activities. We believe our existing cash and cash equivalents will be sufficient in both the short and long term to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements. 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. As a result of our downgrade, our ability to raise additional financing from external sources in the future may be adversely affected and we may not be able to raise capital on terms acceptable to us or at all. In addition, even if debt financing is available, the cost of additional financing may be significantly higher than our current debt.

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 June 30, 2022, the total amount of lease payments due is $99.0 million, with $37.4 million due within the next 12 months. With respect to non-cancelable purchase obligations, which consists of committed spend relating to technology and advertising, as of June 30, 2022, the total amount due was $602.5 million, with $328.7 million due within the next 12 months. See Notes 10. Accrued Expenses and Other Current Liabilities, 11. Indebtedness and 16. Income Taxes of the Notes to our 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 June 30, 2022.

Cash flows

			Six Months Ended June 30,
			2022						2021
			(in thousands)
Net cash (used in) provided by operating activities			$	(3,863,775)					$	7,394,664
Net cash used in investing activities			(618,620)						(337,748)
Net cash (used in) provided by financing activities			(186,157)						1,434,676
Net (decrease) increase in cash, cash equivalents, and restricted cash			$	(4,668,552)					$	8,491,592
Effect of exchange rates on cash, cash equivalents, and restricted cash			$	(119,932)					$	11,015
Change in customer custodial cash			$	(3,345,085)					$	5,198,420

Operating activities

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

Net cash used in operating activities was $3.9 billion for the six months ended June 30, 2022, of which $3.4 billion related to cash from the change in customer custodial cash liabilities. Our net cash used in operating activities, other than from customer custodial cash liabilities, reflected a net loss of $1.5 billion, partially offset by non-cash adjustments of $1.3 billion, which was driven by stock-based compensation expense, crypto asset impairment expense, unrealized losses on foreign exchange, depreciation and amortization expense, impairment expense on ventures investments, non-cash lease expense and other impairment expense. This was partially offset by deferred income taxes and realized gains on crypto assets driven by net crypto assets received from operating activities. In addition to these changes were changes in operating assets and liabilities, other than customer custodial cash liabilities, of $215.7 million.

Net cash provided by operating activities was $7.4 billion for the six months ended June 30, 2021, of which $5.1 billion related to cash from the change in customer custodial cash liabilities. Our net cash provided by operating activities, other than from customer custodial cash liabilities, reflected net income of $2.4 billion, non-cash adjustments of $247.1 million, which was driven by stock-based compensation expense, impairment expense, depreciation and amortization expense, and non-cash lease expense. This was partially offset by realized gains on crypto assets driven by net crypto assets received from operating activities and fair value derivative adjustments. In addition to these changes were changes in operating assets and liabilities, other than customer custodial cash liabilities, of $331.5 million.

Investing activities

Net cash used in investing activities of $618.6 million for the six months ended June 30, 2022 was due to $443.7 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, $46.9 million in investments of companies and technologies and $32.1 million in capitalized internal-use software development costs. This was partially offset by $92.5 million in net inflow for retail user loans repaid and originated.

Net cash used in investing activities of $337.7 million for the six months ended June 30, 2021 was due to $163.4 million in net outflow for the purchase and sale of crypto assets, $68.7 million in net outflow for retail user loans originated and repaid, $38.6 million in investments of companies and technologies, $33.0 million in net cash paid in the Bison Trails acquisition, $24.0 million related to the asset acquisition of technical talent and $9.8 million in capitalized internal-use software development costs.

Financing activities

Net cash used in financing activities of $186.2 million for the six months ended June 30, 2022 was due to $213.1 million of taxes paid related to net share settlements of equity awards and $170.0 million in repayments of short-term borrowings. This was partially offset by $149.4 million of proceeds received from the issuance of short-term borrowings, net of issuance costs, $31.9 million of proceeds from the issuance of common stock from stock option exercises, net of repurchases, and $12.0 million of proceeds received under the employee stock purchase plan.

Net cash provided by financing activities of $1.4 billion for the six months ended June 30, 2021 was due to $1.4 billion of proceeds from the issuance of our convertible senior notes, net of issuances costs, $149.9 million of proceeds from the issuance of common stock from stock option exercises, net of repurchases, and $20.0 million of proceeds from the issuance of a short-term borrowing. This was partially offset by the purchase of $90.1 million of capped calls in connection with our convertible senior notes, and $51.7 million of taxes paid related to net share settlement of equity awards.

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. Summary of Significant Accounting Policies, of the Notes to the condensed consolidated financial statements included 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.