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, 2022*. Th**e 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 Management’s Discussion and Analysis of Financial Condition and Results of Operations 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 2023 was a strong quarter of execution for Coinbase and marked continued progress in our journey to build a company that is increasingly efficient and financially disciplined. Beginning in the second quarter of 2022, we started reducing our expense base to operate more efficiently. This included a reduction in headcount of over 30% year-over-year which has paved the way for a more efficient environment where our teams are exhibiting stronger execution, and yielding results.

For the three and six months ended June 30, 2023, our total net revenue was $662.5 million and $1.4 billion, respectively, including $327.1 million and $701.8 million in transaction revenue, respectively. For the three and six months ended June 30, 2022, we generated $802.6 million and $2.0 billion of total net revenue, respectively, including $655.2 million and $1.7 billion in transaction revenue, respectively.

Subscription and services revenue was $335.4 million and $697.1 million for the three and six months ended June 30, 2023, respectively, and $147.4 million and $299.2 million for the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2023, our net loss was $97.4 million and $176.3 million, respectively, and Adjusted EBITDA was $194.0 million and $477.6 million, 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.

Our ambition remains unchanged: to build trusted and easy to use products and services to bring over one billion people into crypto. In the second quarter of 2023, we made further progress toward this bold goal such as expanded access to derivatives products to customers outside the United States, being selected by many leading asset managers to provide critical infrastructure underpinning their proposed Bitcoin spot ETF products, and more recently, by taking tangible steps to move our Base product from pilot to general availability. As we look ahead, we are expanding our focus towards crypto use cases beyond trading. As an example, Base is an investment in blockchain infrastructure which we expect will drive down transaction costs and increase transaction speed – key attributes we believe will unlock new use cases over time.

This quarter also represented progress for crypto regulation, both in the United States and globally. In the United States, we are beginning to see a pathway for bipartisan legislation that could enshrine consumer protections and an equitable market structure framework, while also recognizing the importance of keeping crypto innovation in the US. Likewise, the European Union saw the implementation of its long-planned Markets in Crypto-Assets Regulation, which institutes uniform market rules for crypto in all 27 European Union member states.

These last few quarters have been challenging and invigorating alike, but by strengthening our financial health we are well positioned to generate the resources we need to keep investing as we build the future of crypto and help drive regulatory clarity to update the financial system.

Key Business Metrics

In addition to the measures presented in our condensed consolidated financial statements, we use the key business metrics listed below 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
		2023	2022				2023			2022

MTUs (in millions)			7.3		9.0			(19)	%		7.9		9.1		(13)	%
Trading Volume (in billions)			$	92	$	217		(58)			$	237	$	526	(55)

Net loss (in millions)			$	(97)	$	(1,094)		(91)			$	(176)	$	(1,523)	(88)
Adjusted EBITDA(1) (in millions)			$	194	$	(151)		228			$	478	$	(131)	465

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

Monthly Transacting Users

We define an “MTU” as a consumer 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 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 consumers due to differences in product architecture or user behavior.

Trading Volume

We define “Trading Volume” as the total U.S. dollar equivalent value of spot 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, Crypto Asset Volatility and macroeconomic conditions. 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
	2023			2022					2023				2022
Trading Volume (in billions):
Consumer	$	14		$	46		(70)	%		$	35			$	121		(71)	%
Institutional	78			171			(54)			202				405			(50)
Total	$	92		$	217		(58)			$	237			$	526		(55)

Trading Volume by crypto asset:
Bitcoin	40		%	31		%	29			35		%		27		%	30
Ethereum	23			22			5			23				21			10
Other crypto assets	38			47			(19)			42				52			(19)
Total(1)	100%			100%						100		%		100		%

Transaction revenue by crypto asset:
Bitcoin	39		%	31		%	26			38		%		28		%	36
Ethereum	21			22			(5)			19				22			(14)
Other crypto assets	39			47			(17)			43				50			(14)
Total	100%			100%						100		%		100		%

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

Trading Volume for the three and six months ended June 30, 2023 decreased 58% and 55% compared to the three and six months ended June 30, 2022, respectively. Crypto Asset Volatility decreased 59% and 46% for the three and six months ended June 30, 2023 compared to the three and six months ended June 30, 2022, respectively.

The decrease in both Trading Volume and Crypto Asset Volatility were driven by materially different market conditions between the quarters that have evolved over the last year. 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. The first quarter of 2022 continued a trend of both lower crypto prices and volatility that began in late 2021 driven by weaker macroeconomic conditions. These already weakening market conditions were exacerbated by the events of 2022. The first was the de-pegging of $LUNA in the second quarter of 2022 which contributed to approximately 60% crypto market capitalization decline in that quarter and ultimately drove the credit related bankruptcies of Three Arrows Capital, Voyager and Celsius. The second event was the collapse of FTX in the fourth quarter of 2022, which drove additional credit related bankruptcies. These events contributed to an overall market capitalization decline of 64% or approximately $1.5 trillion of value lost in 2022 which in turn impacted overall industry trading volume and more specifically Coinbase Trading Volume and transaction revenues. While the three months ended June 30, 2023 saw crypto market capitalization remain resilient, Global and US spot volumes across the industry further declined compared to the three months ended March 31, 2023, driven by a reduction in crypto asset volatility. The decline in volatility, and thus overall Trading Volume, was a result of overall degraded crypto sentiment, regulatory uncertainty, bank failures and market shock events like the de-pegging of USDC in March 2023 as well as an overall reduction in liquidity.

During the three and six months ended June 30, 2023 and 2022, no asset other than Bitcoin and Ethereum individually represented more than 10% of our Trading Volume or transaction revenue, respectively.

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,
	2023		2022		2023		2022

	(in thousands)
Revenue:
Net revenue	$	662,500	$	802,603	$	1,398,898	$	1,967,494
Other revenue	45,411		5,722		81,542		7,267
Total revenue	707,911		808,325		1,480,440		1,974,761
Operating expenses:
Transaction expense	108,200		167,187		204,569		445,013
Technology and development	320,667		609,249		678,698		1,179,913
Sales and marketing	83,853		140,894		147,829		341,098
General and administrative	258,988		470,169		507,749		883,747
Restructuring	(1,035)		42,453		143,454		42,453
Other operating expense (income), net	10,813		422,762		(4,409)		681,389
Total operating expenses	781,486		1,852,714		1,677,890		3,573,613
Operating loss	(73,575)		(1,044,389)		(197,450)		(1,598,852)
Interest expense	21,672		23,656		43,208		45,794
Other (income) expense, net	(16,564)		172,524		3,701		205,368
Loss before income taxes	(78,683)		(1,240,569)		(244,359)		(1,850,014)
Provision for (benefit from) income taxes	18,722		(146,915)		(68,058)		(326,701)
Net loss	$	(97,405)	$	(1,093,654)	$	(176,301)	$	(1,523,313)

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,
	2023		2022		2023		2022

	(as a % of total revenue)(1)
Total revenue	100	%	100	%	100	%	100	%
Operating expenses:
Transaction expense	15		21		14		23
Technology and development	45		75		46		60
Sales and marketing	12		17		10		17
General and administrative	37		58		34		45
Restructuring	—		5		10		2
Other operating expense (income), net	2		52		—		35
Total operating expenses	110		229		113		181
Operating loss	(10)		(129)		(13)		(81)
Interest expense	3		3		3		2
Other (income) expense, net	(2)		21		—		10
Loss before income taxes	(11)		(153)		(17)		(94)
Provision for (benefit from) income taxes	3		(18)		(5)		(17)
Net loss	(14)	%	(135)	%	(12)	%	(77)	%

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

Comparison of the three and six months ended June 30, 2023 and 2022

Revenue


	Three Months Ended June 30,						Six Months Ended June 30,
	2023		2022		% Change		2023		2022		% Change

	(in thousands)						(in thousands)
Transaction revenue	$	327,098	$	655,213	(50)	%	$	701,811	$	1,668,250	(58)	%
Subscription and services revenue	335,402		147,390		128		697,087		299,244		133
Other revenue	45,411		5,722		694		81,542		7,267		1,022
Total revenue	$	707,911	$	808,325	(12)		$	1,480,440	$	1,974,761	(25)

Transaction revenue decreased by $328.1 million and $966.4 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to the following:

a decrease in consumer Trading Volume of 70% and 71% for the three and six months ended June 30, 2023, respectively, due to a decrease in crypto market capitalization, including average crypto asset prices; and
a decline in Crypto Asset Volatility of 59% and 46% for the three and six months ended June 30, 2023, respectively. Trading Volume on our platform is generally correlated with Crypto Asset Volatility.

Subscription and services revenue increased by $188.0 million and $397.8 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to the following:

an increase in interest income of $168.9 million and $399.2 million for the three and six months ended June 30, 2023, respectively, due to increased returns on our revenue sharing arrangement with the issuer of USDC and on interest-bearing customer custodial funds, driven by an increase in interest rates; and
an increase in blockchain rewards of $19.2 million and $11.1 million for the three and six months ended June 30, 2023, respectively, primarily due to an increase in staked balances, and the addition of new assets available for staking such as Solana and Cardano, offset by
a decrease in custodial fee revenue of $5.2 million and $19.8 million for the three and six months ended June 30, 2023, respectively, due to a decrease in average assets under custody of $8.8 billion and $30.9 billion, respectively, primarily driven by a decrease in average asset prices of crypto assets under custody.

Other revenue increased by $39.7 million and $74.3 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to an increase in corporate bank interest income from higher interest rates and higher average cash balances in money market funds.

Operating expenses


	Three Months Ended June 30,						Six Months Ended June 30,
	2023		2022		% Change		2023		2022		% Change

	(in thousands)						(in thousands)
Transaction expense	$	108,200	$	167,187	(35)	%	$	204,569	$	445,013	(54)	%
Technology and development	320,667		609,249		(47)		678,698		1,179,913		(42)
Sales and marketing	83,853		140,894		(40)		147,829		341,098		(57)
General and administrative	258,988		470,169		(45)		507,749		883,747		(43)
Restructuring	(1,035)		42,453		(102)		143,454		42,453		238
Other operating expense (income), net	10,813		422,762		(97)		(4,409)		681,389		(101)
Total operating expenses	$	781,486	$	1,852,714	(58)		$	1,677,890	$	3,573,613	(53)

Transaction expense decreased by $59.0 million and $240.4 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022.

Transaction expense as a percentage of net revenue was 16.3% and 20.8% during the three months ended June 30, 2023 and 2022, respectively, and 14.6% and 22.6% during the six months ended June 30, 2023 and 2022, respectively. During the year ended December 31, 2022 and six months ended June 30, 2023, we have launched several optimization efforts to lower our unit cost on transaction expenses. Our transaction expenses as a percentage of net revenue will vary depending on our revenue mix between transaction (which varies with trading volume) and blockchain revenue.

The decrease in transaction expense for the three and six months ended June 30, 2023, compared to the three and six months ended June 30, 2022, was driven by the following:

a decrease of $19.2 million and $101.3 million for the three and six months ended June 30, 2023, respectively, related to miner fees driven by a decrease in blockchain transmission volume, both related to customer withdrawals and corporate wallet movements, lower blockchain network fees such as Ethereum gas prices, and significant investments in batching and other optimizations in onchain activity;
a decrease of $34.1 million and $86.5 million for the three and six months ended June 30, 2023, respectively, related to lower payment processing fees and account verification expenses driven by lower settled trading volume; and
a decrease of $13.9 million and $49.3 million for the three and six months ended June 30, 2023, respectively, related to transaction reversal losses driven by lower transaction volumes and our investments in strengthening controls and cost optimization efforts.

Technology and development expenses decreased by $288.6 million and $501.2 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, predominantly due to the following:

a decrease of $167.0 million and $343.3 million for the three and six months ended June 30, 2023, respectively, in personnel-related expenses, including a $138.0 million and $271.8 million decrease in stock-based compensation expense, due to a decrease in average headcount and the roll-off of certain stock-based compensation awards following our workforce reductions in January 2023 and June 2022, along with certain compensation program changes; and
a decrease of $89.3 million and $140.3 million for the three and six months ended June 30, 2023, respectively, in website hosting service costs and software and service costs, due to cost optimization efforts.

Sales and marketing expenses decreased by $57.0 million and $193.3 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, predominantly driven by the following:

a decrease of $45.6 million and $162.4 million for the three and six months ended June 30, 2023, respectively, in media and brand spend and from in-house efficiencies; and
a decrease of $4.2 million and $17.8 million for the three and six months ended June 30, 2023, respectively, in referral and promotion fees due to lower spend on new user incentives and sweepstakes.

General and administrative expenses decreased by $211.2 million and $376.0 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, predominantly driven by the following:

a decrease of $134.6 million and $248.6 million in consumer customer support costs for the three and six months ended June 30, 2023, respectively, due to a decrease in managed services to support compliance operations and customer experience, driven by automation and reduction in capacity needs that we built in 2022 to address backlogs from 2021, and a decrease in personnel-related expenses resulting from the workforce reductions in June 2022 and January 2023;
a decrease of $38.6 million and $60.0 million in personnel-related expenses excluding consumer customer support, for the three and six months ended June 30, 2023, respectively, including a $33.9 million and $47.1 million decrease in stock-based compensation expense; and
a decrease of $21.6 million and $35.0 million in taxes, licenses, and fees for the three and six months ended June 30, 2023, respectively, due to a reduction in value-added taxes and certain other taxes.

Restructuring expense was negative $1.0 million for the three months ended June 30, 2023 due to the release of accruals for certain separation pay expenses and other personnel costs that were recorded as of March 31, 2023 but not utilized. Restructuring expense was $143.5 million for the six months ended June 30, 2023 and was driven by separation pay, stock-based compensation expense relating to the acceleration of the vesting of outstanding equity awards in accordance with the terms of such awards, and other personnel costs related to the workforce reduction in January 2023. Restructuring expense was $42.5 million for the three and six months ended June 30, 2022 and was driven by separation pay and other personnel costs related to the workforce reduction in June 2022.

Other operating expense (income), net decreased by $411.9 million and $685.8 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to the following:

a decrease of $409.8 million and $608.8 million for the three and six months ended June 30, 2023, respectively, related to gross impairment charges on crypto assets held;
a decrease of $6.0 million and $39.4 million for the three and six months ended June 30, 2023, respectively, due to lower platform-related incidents and losses; and
a decrease of $36.2 million for the six months ended June 30, 2023 due to higher crypto asset realized gains offset by net realized losses on futures contracts.

Interest expense


	Three Months Ended June 30,						Six Months Ended June 30,
	2023		2022		% Change		2023		2022		% Change

	(in thousands)						(in thousands)
Interest expense	$	21,672	$	23,656	(8)	%	$	43,208	$	45,794	(6)	%

Interest expense on debt was $21.7 million and $43.2 million for the three and six months ended June 30, 2023, respectively, compared to $23.7 million and $45.8 million for the three and six months ended June 30, 2022, respectively.

Other (income) expense, net


	Three Months Ended June 30,						Six Months Ended June 30,
	2023		2022		% Change		2023		2022		% Change

	(in thousands)						(in thousands)
Other (income) expense, net	$	(16,564)	$	172,524	(110)	%	$	3,701	$	205,368	(98)	%

Other (income) expense, net decreased by $189.1 million and $201.7 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to the following:

a decrease of $106.4 million and $123.8 million for the three and six months ended June 30, 2023, respectively, in net realized and unrealized losses on foreign exchange due to improvement in foreign exchange risk management and appreciation of the U.S. dollar against the Euro;
a decrease of $66.1 million and $61.1 million for the three and six months ended June 30, 2023, respectively, due to a decrease in the amount of impairment recognized on certain strategic equity investments; and
a net gain of $17.9 million on the repurchase of our 2026 Convertible Notes in June 2023.

Provision for (benefit from) income taxes


	Three Months Ended June 30,					Six Months Ended June 30,
		2023		2022		% Change		2023		2022		% Change

	(in thousands)					(in thousands)
Provision for (benefit from) income taxes		$	18,722	$	(146,915)	(113)	%	$	(68,058)	$	(326,701)	(79)	%

The provision for (benefit from) income taxes decreased by $165.6 million and $258.6 million for the three and six months ended June 30, 2023, respectively, compared to the three and six months ended June 30, 2022, due to lower tax benefits on pretax losses, certain stock-based compensation and research and development credits, offset by a partial release of a valuation allowance recorded on impairment charges.

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, crypto asset impairment, net, loss on investments, net, other impairment, restructuring, gain on extinguishment of long-term debt, net, change in unrealized 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 to Adjusted EBITDA:


	Three Months Ended June 30,	Six Months Ended June 30,
		2023		2022		2023		2022

		(in thousands)				(in thousands)
Net loss		$	(97,405)	$	(1,093,654)	$	(176,301)	$	(1,523,313)
Adjusted to exclude the following:
Provision for (benefit from) income taxes		18,722		(146,915)		(68,058)		(326,701)
Depreciation and amortization		36,982		42,027		78,190		73,607
Interest expense		21,672		23,656		43,208		45,794
Crypto asset borrowing costs		1,218		1,566		2,738		3,002
Stock-based compensation		199,772		391,496		398,632		743,637
Crypto asset impairment, net(1)		8,499		377,005		20,584		586,823
Loss on investments, net(2)		3,172		69,289		8,180		69,289
Other impairment(3)		2,586		6,770		8,113		7,949
Restructuring		(1,035)		42,453		143,454		42,453
Gain on extinguishment of long-term debt, net		(17,855)		—		(17,855)		—
Change in unrealized foreign exchange		8,008		107,683		16,435		115,072

Fair value (gain) loss on derivatives		(10,731)		(2,500)		(13,930)		952
Non-recurring legal reserves and related costs		—		14,250		—		14,250
Other adjustments, net		20,347		15,797		34,214		15,797
Adjusted EBITDA		$	193,952	$	(151,077)	$	477,604	$	(131,389)

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

(2)Includes impairment and net losses on investments.

(3)Other impairment represents impairment on property and equipment and intangible assets.

(4)

Liquidity and Capital Resources

Cash and cash equivalents, restricted cash and USDC

As of June 30, 2023, we had cash and cash equivalents of $5.2 billion, exclusive of restricted cash and customer custodial funds. As of June 30, 2023 and December 31, 2022, our cash and cash equivalents, restricted cash, and USDC balance consisted of the following (in millions):


	June 30,		December 31,
	2023		2022
Cash and cash equivalents:
Cash equivalents(1)	$	3,820.2	$	2,250.1
Cash held at banks	1,166.0		2,031.7
Cash held at venues	180.5		143.2
Total cash and cash equivalents	$	5,166.7	$	4,425.0

Restricted cash(2)	$	20.7	$	25.9
USDC(3)	315.5		861.1

(1) Cash equivalents consists of money market funds 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 $1.4 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.

As market conditions warrant, we may, from time to time, repurchase our outstanding debt securities in the open market, in privately negotiated transactions, by exchange transaction or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity and other factors and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material.

In June 2023, we entered into multiple privately negotiated purchase agreements with a limited number of holders of our 2026 Convertible Notes to repurchase $64.5 million in aggregate principal of the existing notes, resulting in cash payments of $45.5 million. The transaction represented an approximately 29% discount to par value. Following the close of the transaction, the remaining outstanding principal balance of the 2026 Convertible Notes was approximately $1.37 billion.

See Notes 10. Accrued Expenses and Other Current Liabilities and 12. 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 January 2023, S&P Global Ratings announced a downgrade of our issuer credit rating and senior unsecured debt from BB to BB-, and Moody’s Investors Service (“Moody’s”) announced a downgrade of our Corporate Family Rating (“CFR”) to B2 from Ba3 and downgraded our guaranteed senior unsecured notes to B1 from Ba2. As of June 30, 2023, our credit ratings with S&P Global Ratings and Moody’s remain unchanged from the above.

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 execute these 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, 2023, we held $400.0 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, 2023 and December 31, 2022, the cost basis and fair value of our crypto assets held at impaired cost was as follows:


	June 30,				December 31,
	2023				2022
	Cost(1)		Fair Value(2)		Cost(1)		Fair Value(2)

	(in millions)
Crypto assets held as investments:
Bitcoin(3)	$	126.7	$	279.8	$	111.6	$	151.8
Ethereum(3)	130.9		230.1		91.2		138.7
Other	63.9		139.2		85.9		135.8
Total crypto assets held as investments	321.5		649.1		288.7		426.3

Crypto assets held for operating purposes:
Bitcoin	8.1		9.8		5.4		5.8
Ethereum	25.1		36.4		24.4		25.8
Other	45.3		65.6		37.7		59.1
Total crypto assets held for operating purposes	78.5		111.8		67.5		90.7
Total crypto assets held	$	400.0	$	760.9	$	356.2	$	517.0

(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.

(3)During the fourth quarter of 2022, we entered into futures contracts to hedge our price exposure on crypto assets held as investments. These contracts were closed out during the first quarter of 2023. As of December 31, 2022, the cost and fair value amounts for Bitcoin were $89.9 million and $85.8 million, respectively, and the cost and fair value amounts for Ethereum were $43.7 million and $50.8 million, respectively.

We view our crypto asset investments as long term holdings and we do not plan to engage in regular trading of crypto assets. From time to time, we may enter into derivatives or other financial instruments in an attempt to hedge our price exposure on our crypto assets held as investments. 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 $3.8 million and $22.0 million of impairment expense on our crypto asset investment portfolio for the three and six months ended June 30, 2023, respectively.

We enter into fiat and crypto asset borrowing arrangements with certain institutional customers. These borrowings are generally open-term or have a term of less than one year. Certain borrowing arrangements require us to post collateral in the form of fiat or crypto assets, including stablecoins, and the lender may have the right to sell, repledge or rehypothecate such collateral without our consent. We only use our corporate crypto assets, stablecoins, and cash as collateral. We do not use cbETH as corporate collateral.

We are required to maintain a collateral to loan ratio per our borrowing agreements. Any significant change in crypto asset prices could impact the value of the crypto asset borrowed or the value of crypto asset collateral. Recent downward trends in crypto asset prices have not had a material impact on the value of our corporate collateral. If crypto asset prices rise, we will post additional collateral to maintain required collateral loan ratios. We were in compliance with all collateral requirements as of June 30, 2023. See Risk Factors - We provide secured loans to our customers, which exposes us to credit risks and may cause us to incur financial or reputational harm included in Part II, Item 1A of this Quarterly Report on Form 10-Q for further information.

As of June 30, 2023 and December 31, 2022, the balance of our pledged collateral consisted of the following (in millions, except units):


	June 30, 2023			December 31, 2022
	Units	Fair Value		Units	Fair Value
Asset
USDC	54,493,037	$	54.5	47,633,897	$	47.6
Bitcoin	815	24.8		650	10.8
Fiat	N/A	0.1		N/A	41.6
Total		$	79.4		$	100.0

Customer crypto assets and liabilities

We safeguard customer crypto assets and the associated keys and are obligated to safeguard them from loss, theft, or other misuse. In accordance with recently adopted guidance, SAB 121, we record customer crypto liabilities, as well as a corresponding customer crypto asset on the condensed consolidated balance sheets, at fair value. See Note 8. Customer Assets and Liabilities 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 as of June 30, 2023.

As of June 30, 2023, we have not experienced excessive redemptions or withdrawals, or prolonged suspended redemptions or withdrawals, of crypto assets to date. See Risk Factors - Depositing and withdrawing crypto assets into and from our platform involves risks, which could result in loss of customer assets, customer disputes and other liabilities, which could adversely impact our business included in Part II, Item 1A of this Quarterly Report on Form 10-Q for further information. We do not use customer crypto assets as collateral for any loan, margin, rehypothecation, or other similar activities without their consent to which we or our affiliates are a party.

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 customer receivables. As of June 30, 2023 and December 31, 2022, 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. We are in compliance with these capital requirements.

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.

As of June 30, 2023, our material cash requirements and contractual obligations due within the next 12 months and in total consisted of the following (in millions):


	Amounts Due
	Next 12 Months		Total
Operating leases(1)	$	12.9	$	21.7
Non-cancelable purchase obligations(2)	288.9		580.1
2026 Convertible Notes(3)
Interest	6.8		20.0
Principal	—		1,373.0
2028 Senior Notes(4)
Interest	33.8		185.6
Principal	—		1,000.0
2031 Senior Notes(4)
Interest	36.3		308.1
Principal	—		1,000.0
Other(5)	29.4		29.4

(1) Lease payments due for corporate offices.

(2) Committed spend primarily relating to technology and advertising.

(3) Assumes the 2026 Convertible Notes are not converted into our Class A common stock, repurchased or redeemed prior to maturity.

(4) Assumes the 2028 and 2031 Senior Notes are not repurchased or redeemed prior to maturity.

(5) In January 2023, the NYDFS announced a consent order focused on historical shortcomings in Coinbase, Inc.’s compliance program. Pursuant to the consent order, Coinbase, Inc. paid a $50.0 million penalty in January 2023 and agreed to invest an additional $50.0 million in its compliance function by the end of 2024.

See Notes 10. Accrued Expenses and Other Current Liabilities, 12. Indebtedness, 17. Income Taxes and 19. Commitments and Contingencies 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, 2023.

Cash flows


	Six Months Ended June 30,
	2023		2022

	(in thousands)
Net cash provided by (used in) operating activities	$	614,202	$	(442,488)
Net cash used in investing activities	(12,754)		(618,620)
Net cash used in financing activities	(1,142,263)		(3,607,444)
Net decrease in cash, cash equivalents, and restricted cash	$	(540,815)	$	(4,668,552)
Effect of exchange rates on cash, cash equivalents, and restricted cash	$	(4,370)	$	(119,932)
Change in customer custodial cash	$	(1,281,721)	$	(3,345,085)

Operating activities

Net cash provided by operating activities was $614.2 million for the six months ended June 30, 2023. Our net cash provided by operating activities reflected a net loss of $176.3 million, which included non-recurring losses from our reduction in force in January 2023 of $60.4 million relating to separation pay and other personnel costs. Our non-cash adjustments were $463.7 million, which was driven by stock-based compensation expense, depreciation and amortization, crypto asset impairment expense, realized loss on crypto futures contract, and non-cash lease expense. This was partially offset by realized gains on crypto assets driven by net crypto assets received from operating activities, deferred income taxes, and a gain on the repurchases of our 2026 Convertible Notes. In addition to these changes were changes in operating assets and liabilities of $326.8 million, which was primarily driven by reductions in corporate USDC to facilitate customer mints and burns.

Net cash used in operating activities was $442.5 million for the six months ended June 30, 2022. Our net cash used in operating activities reflected 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 of $215.7 million.

Investing activities

Net cash used in investing activities of $12.8 million for the six months ended June 30, 2023 was due to $34.7 million in net outflow for institutional and consumer loans originated and repaid, $30.7 million in net cash paid in the One River acquisition, $30.6 million in capitalized internal-use software development costs, $4.8 million in investments of companies and technologies and a $1.0 million outflow for the settlement of a crypto futures contract, net of collateral returned. This was partially offset by $89.0 million in net inflow for the sale and purchase of crypto assets.

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 consumer loans repaid and originated.

Financing activities

Net cash used in financing activities of $1.1 billion for the six months ended June 30, 2023 was due to changes in customer custodial cash liabilities of $988.0 million, $115.4 million of taxes paid related to net share settlements of equity awards, $52.1 million in repayments of short-term borrowings, and $45.5 million in repurchases of our 2026 Convertible Notes. This was partially offset by $31.6 million of proceeds received from the issuance of short-term borrowings, $16.6 million of proceeds from the issuance of common stock from stock option exercises, net of repurchases, and $9.0 million of proceeds received under our employee stock purchase plan.

Net cash used in financing activities of $3.6 billion for the six months ended June 30, 2022, was due to changes in customer custodial cash liabilities of $3.4 billion, $213.1 million of taxes paid related to net share settlement 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 our employee stock purchase plan.

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 our 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 21, 2023.

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.

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