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 third quarter of 2023 was a strong quarter of execution for Coinbase. Amid multi-year low levels of volatility, we are pleased with our financial results.

For the three and nine months ended September 30, 2023, our total net revenue was $623.0 million and $2.0 billion, respectively, including $288.6 million and $990.4 million in transaction revenue, respectively. For the three and nine months ended September 30, 2022, we generated $576.4 million and $2.5 billion of total net revenue, respectively, including $365.9 million and $2.0 billion in transaction revenue, respectively. Subscription and services revenue was $334.4 million and $1.0 billion for the three and nine months ended September 30, 2023, respectively, and $210.5 million and $509.8 million for the three and nine months ended September 30, 2022, respectively.

For the three and nine months ended September 30, 2023, our net loss was $2.3 million and $178.6 million, respectively, and Adjusted EBITDA was $180.9 million and $658.5 million, respectively. For the three and nine months ended September 30, 2022, our net loss was $544.6 million and $2.1 billion, respectively, and Adjusted EBITDA was negative $115.9 million and negative $247.3 million, respectively.

We exhibited strong product momentum against our three pillar product strategy. For our first pillar, crypto as an asset class, we listed new assets and unified our USD/USDC order books which drove incremental Advanced trading volume and USDC balances on our platform. In support of our Go Broad and Go Deep international strategy, we registered with the Bank of Spain and launched in Canada, expanding our reach. Further, we realized a multi-quarter objective when Coinbase Financial Markets secured regulatory approval from the National Futures Association, a CFTC-designated self-regulatory organization, to operate a Futures Commission Merchant and offer eligible US customers access to crypto futures. In support of our second pillar, crypto updating the financial system, we entered into an updated arrangement with Circle to support USDC and help drive long-term success of the stablecoin ecosystem. Our efforts to drive our third pillar, crypto powering the future of the internet, we introduced Base, our advanced layer 2 (L2) solution. L2 networks can be likened to the transition from dial-up internet to broadband. Base optimizes speed and efficiency, significantly reduces costs, while granting developers seamless access to the extensive Coinbase ecosystem.

This work is important now because the opportunity is too large to let a tough market distract us. We firmly believe that onchain is the new online. Just like the Internet broke down barriers, democratized access to information, and made knowledge universally available, crypto is doing the same with broader access to financial services and commerce. We believe the onchain companies of today will be the tech giants of tomorrow, and we are positioning Coinbase at the forefront of this technology as a responsible, compliant, trusted, financially strong, and innovative business. These attributes form the core of our competitive advantage, and we are staying focused on building the technologies that expand crypto’s utility and position Coinbase to win.

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 September 30,% ChangeNine Months Ended September 30,% Change
2023202220232022
MTUs (in millions)6.78.5(21)%7.58.9(16)%
Trading Volume (in billions)$76$159(52)$313$685(54)
Net loss (in millions)$(2)$(545)100$(179)$(2,068)(91)
Adjusted EBITDA(1) (in millions)$181$(116)256$659$(247)367

(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 a Monthly Transacting User (“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 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.

The year-over-year decrease in our MTUs is driven primarily by a decline in MTUs engaging in active trading transactions.

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 September 30,% ChangeNine Months Ended September 30,% Change
2023202220232022
Trading Volume (in billions):
Consumer$11$26(58)$46$147(69)
Institutional65133(51)267538(50)
Total$76$159(52)$313$685(54)
Trading Volume by crypto asset:
Bitcoin38%31%2336%28%29
Ethereum1933(42)2224(8)
USDT(1)152650102400
Other crypto assets2834(18)3246(30)
Total(2)100%100%100%100%
Transaction revenue by crypto asset:
Bitcoin37%31%1937%28%32
Ethereum1824(25)1923(17)
Other crypto assets464524449(10)
Total(2)100%100%100%100%

(1)USDT is a stablecoin issued by Tether Operations Limited.

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

The decline in Trading Volume for the three and nine months ended September 30, 2023 as compared to the prior year comparative periods is primarily due to a decline in Crypto Asset Volatility1 of 60% and 50%, respectively, driven by materially different market conditions between the periods presented. Such conditions have continued to evolve since late 2021 when crypto market conditions began to weaken.

1 Crypto Asset Volatility represents our internal measure of crypto volatility in the market relative to prior periods. The volatility is based on intraday returns of a volume-weighted basket of all assets listed on our trading platform. These returns are used to compute the basket’s intraday volatility which is then scaled to a daily window. These daily volatility values are then averaged over the applicable time period as needed.

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 September 30, 2023 saw crypto market capitalization remain resilient, Global and US spot volumes across the industry further declined over the nine months ended September 30, 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 months ended September 30, 2023, USDT volume was elevated, largely due to de-pegging events which drove higher activity in secondary markets such as our exchange.

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

Components of Results of Operations

Revenue

We generate revenue from transactions, subscription and services, and other activity. The vast majority of our total revenue generated in the United States, based on the domicile of the customers or booking location. No other country accounted for more than 10% of our total revenue during the periods presented.

Net revenue

Transaction revenue

Transaction revenue is generated primarily from transaction fees on consumer and institutional 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. Institutional customers incur lower fees per transaction than consumer customers and, as a result, the impact of changes in consumer Trading Volume on transaction revenue is more pronounced than changes in institutional Trading Volume. In addition, changes in our pricing and mix between types of transactions will affect transaction revenue. See the section titled “—Key Business Metrics—Trading Volume” above for more information on our Trading Volume metric.

Subscription and services revenue

Subscription and services revenue primarily consists of:

  • Stablecoin revenue: We derive stablecoin revenue from our arrangement with the issuer of USDC. We earn a pro rata portion of income earned on USDC reserves based on the amount of USDC held on each respective party’s platform, and from the distribution and usage of USDC after certain expenses. Income derived by us from this arrangement is dependent on various factors including the balance of USDC on our platform, the total market capitalization of USDC, and the prevailing interest rate environment.

  • Blockchain rewards: Our blockchain services 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.

  • 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. Staking revenue is dependent on total customer balances staked, the price of the staked assets, and the reward rates offered by the blockchain protocols.

  • Interest income: We hold customer custodial funds and cash and cash equivalents at certain third-party banks which earn interest. Customers custodial funds balances vary depending on the Trading Volume. As consumer Trading Volume increases, we generally see an increase in customer custodial funds on our platform. This revenue is also dependent on the prevailing interest rate environment. Additionally, we earn interest income on loans issued to our consumer and institutional customers. This interest income is dependent on total loans issued to customers and the prevailing interest rate environment. Interest earned on customer custodial funds and loans is included in interest income within subscription and services revenue, while interest earned on our corporate cash and cash equivalents is included in corporate interest and other income, within other 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. Our custodial fee revenue is further dependent on the fee rates we charge to our customers.

  • Other: Other subscription and services revenue primarily comprises revenue from: Coinbase One; Coinbase Cloud, which includes staking application, delegation, and infrastructure services; Learning Rewards campaign revenue; Prime Financing; and revenue from other subscription licenses.

Other revenue

Other revenue 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. Other revenue also includes the sale of crypto assets when we are the principal in the transaction. Transactions involving our sale of crypto assets when we are the principal in the transaction represented less than 0.1% of our total revenue for the three and nine months ended September 30, 2023.

Operating expenses

Operating expenses consist of transaction expense, technology and development, sales and marketing, general and administrative, restructuring, crypto asset impairment, net, and other operating (income) expense, net.

Transaction expense

Transaction expense includes costs directly associated with revenues. For transaction revenues these expenses include costs to operate our platform, process crypto asset trades, and perform wallet services. The primary components of transaction expenses are: blockchain rewards distributed to customers for their participation in blockchain activities such as staking, account verification fees and fees paid to payment processors and other financial institutions for customer transaction activity, crypto asset losses due to transaction reversals, and miner fees paid to process transactions on blockchain networks. For subscription and services revenues, the primary expenses are the cost of operations and rewards distributed to users for staking validations conducted by us. Fixed-fee costs are expensed over the term of the contract and transaction-level costs are expensed as incurred.

Our transaction expenses as a percentage of net revenue will vary depending on the composition of our revenue. For example, if interest income and stablecoin revenue increase as a percentage of net revenue, transaction expenses as a percentage of net revenue will decrease as there are no transaction expenses directly attributed to these revenues. Conversely, if blockchain rewards increase as a percentage of net revenue, transaction expenses as a percentage of net revenue will increase since the majority of blockchain rewards revenue is distributed to the customer. Additionally, transaction expenses can be impacted by the commission or fee we charge for staking our customers’ assets, as well as by transaction reversal losses.

Technology and development

Technology and development expenses comprise mainly personnel-related expenses incurred in operating, maintaining, and enhancing our platform and in developing new products and services. These costs also include website hosting and infrastructure expenses, and the amortization of internally developed and acquired developed technology. Certain costs of developing new products and services are capitalized to property and equipment, net.

Sales and marketing

Sales and marketing expenses primarily include personnel-related expenses, marketing programs costs, and costs related to customer acquisition. 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 executive, customer support, compliance, finance, human resources, legal, and other support operations. These costs also include professional services and software subscriptions for support services.

Restructuring

Restructuring expenses comprise separation pay, stock-based compensation, and other personnel costs related to reductions in our headcount. For more information, see Note 4. Restructuring of the Notes to our condensed consolidated financial statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Crypto asset impairment, net

Crypto asset impairment, net represents gross impairments recorded on crypto assets held, net of subsequent realized gains on the sale and disposal of previously impaired crypto assets held.

Other operating expense (income), net

Other operating expense (income), net includes fair value gains and losses related to derivatives and derivatives designated in qualifying fair value hedge accounting relationships. It also includes the 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 (income), net.

Because these components are generally variable based on changes in market conditions, they can vary widely from period to period.

Interest expense

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

Other (income) expense, net

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

  • net gains on the repurchase of certain of our long-term debt;

  • realized impacts on foreign exchange resulting from the settlement of our foreign currency assets and liabilities, and 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 and gains and losses on investments, net, which consists primarily of realized and unrealized gains and losses from fair value adjustments.

Because the majority of these components are generally variable based on changes in market conditions, they can vary widely from period to period.

Provision for (benefit from) income taxes

Provision for (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 (in thousands) and each component as a percentage of total revenue:

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
$%****(1)$%****(1)$%****(1)$%****(1)
Revenue:
Net revenue$623,00492$576,37598$2,021,90294$2,543,86999
Other revenue51,144813,9642132,686621,2311
Total revenue674,148100590,3391002,154,5881002,565,100100
Operating expenses:
Transaction expense90,57713101,87617295,14614546,88921
Technology and development322,75648556,338941,001,454461,736,25168
Sales and marketing78,1781275,88813226,00710416,98616
General and administrative252,63037339,15757760,379351,222,90448
Restructuring(860)—(1,232)—142,594741,2212
Crypto asset impairment, net7,180112,150217,0891654,96226
Other operating expense (income), net3,512162,64611(10,806)(1)101,2234
Total operating expenses753,9731121,146,8231942,431,8631134,720,436184
Operating loss(79,825)(12)(556,484)(94)(277,275)(13)(2,155,336)(84)
Interest expense20,821321,507464,029367,3013
Other (income) expense, net(135,307)(20)65,69911(131,606)(6)271,06711
Income (loss) before income taxes34,6615(643,690)(109)(209,698)(10)(2,493,704)(97)
Provision for (benefit from) income taxes36,9265(99,055)(17)(31,132)(1)(425,756)(17)
Net loss$(2,265)—$(544,635)(92)$(178,566)(8)$(2,067,948)(81)

(1)Percentage of total revenue. Figures presented above may not sum precisely due to rounding.

Comparison of the three and nine months ended September 30, 2023 and 2022

The discussion in this section provides comparisons of our condensed consolidated financial results for the three and nine months ended September 30, 2023 compared to the prior year comparative periods of the three and nine months ended September 30, 2022, respectively, unless otherwise noted.

Revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Transaction revenue$288,575$365,868$(77,293)(21)$990,386$2,034,118$(1,043,732)(51)
Subscription and services revenue334,429210,507123,922591,031,516509,751521,765102
Other revenue51,14413,96437,180266132,68621,231111,455525
Total revenue$674,148$590,339$83,80914$2,154,588$2,565,100$(410,512)(16)

For the three and nine months ended September 30, 2023, we generated 90% and 89%, respectively, of total revenue in the United States. For the three and nine months ended September 30, 2022, we generated 85% and 83%, respectively, of total revenue in the United States. No other country accounted for more than 10% of total revenue during the periods presented.

Transaction revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Consumer, net$274,505$346,091$(71,586)(21)$936,944$1,928,145$(991,201)(51)
Institutional, net14,07019,777(5,707)(29)53,442105,973(52,531)(50)
Total transaction revenue$288,575$365,868$(77,293)(21)$990,386$2,034,118$(1,043,732)(51)

The decline in total transaction revenue was primarily due to:

  • decreases of $193.7 million and $1.3 billion in consumer transaction revenue attributed to corresponding decreases in consumer Trading Volume of 58% and 69%. These decreases were offset in part by increases of $122.1 million and $326.6 million attributed to corresponding increases in average blended fee rates of 80% and 54% on consumer transactions, which were influenced by changes in customer mix towards trades which have higher fees and pricing changes as we experimented with increased spread on certain types of consumer trades in 2023; and

  • a decrease in institutional transaction revenue for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, aligned with a corresponding decrease in institutional Trading Volume of 50%. There was no material change for the three months ended September 30, 2023 compared to the three months ended September 30, 2022.

Subscription and services revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Stablecoin revenue$172,357$76,858$95,499124$522,650$99,977$422,673423
Blockchain rewards74,46162,75911,70219235,824213,06422,76011
Interest income39,46724,92014,54758131,36044,76986,591193
Custodial fee revenue15,80514,5321,273949,83968,404(18,565)(27)
Other subscription and services revenue32,33931,438901391,84383,5378,30610
Total subscription and services revenue$334,429$210,507$123,92259$1,031,516$509,751$521,765102

Subscription and services revenue increased due to the following:

  • higher stablecoin revenue primarily attributable to higher average interest rates on USDC reserves, which rose 320 basis points or 171% and 375 basis points or 420%;

  • an increase in blockchain rewards from increases in staked balances for certain assets resulting primarily from increased user participation in reward generating activities;

  • an increase in interest income generated on customer custodial cash, primarily reflecting increases of $25.0 million and $105.9 million attributable to corresponding higher average interest rates, which were up 273 basis points or 209% and 324 basis points or 636%. These increases were offset in part by decreases of $10.2 million and $16.2 million due to lower average month end balances of customer custodial cash. These balances decreased 46% and 49%, attributable to overall crypto market sentiment discussed in the section titled “—Key Business Metrics” above; and

  • a decrease in custodial fee revenue for the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, primarily due to a decrease in average assets under custody of $16.9 billion, resulting from price effects that drove down the value of assets under custody, despite a net inflow of assets. Custodial fee revenue remained relatively flat for the three months ended September 30, 2023.

Other revenue

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Corporate interest and other income$51,144$13,964$37,180266$132,686$21,231$111,455525
Total other revenue$51,144$13,964$37,180266$132,686$21,231$111,455525

Other revenue increased due to an increase in bank interest income driven by higher average interest rates on corporate balances.

Operating expenses

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Transaction expense$90,577$101,876$(11,299)(11)$295,146$546,889$(251,743)(46)
Technology and development322,756556,338(233,582)(42)1,001,4541,736,251(734,797)(42)
Sales and marketing78,17875,8882,2903226,007416,986(190,979)(46)
General and administrative252,630339,157(86,527)(26)760,3791,222,904(462,525)(38)
Restructuring(860)(1,232)372(30)142,59441,221101,373246
Crypto asset impairment, net7,18012,150(4,970)(41)17,089654,962(637,873)(97)
Other operating expense (income), net3,51262,646(59,134)(94)(10,806)101,223(112,029)(111)
Total operating expenses$753,973$1,146,823$(392,850)(34)$2,431,863$4,720,436$(2,288,573)(48)

There were material trends of decreased operating expenses for the three and nine months ended September 30, 2023 as compared to prior year periods discussed below. We do not expect material decreasing expense trends to continue sequentially for the remainder of 2023 as our material restructuring and cost optimization efforts are generally completed. Unless otherwise noted, we anticipate that in the near term, operating expenses will generally remain at lower levels relative to the prior year period, and there are no material sequential trends of note.

Transaction expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Blockchain rewards fees$51,661$42,787$8,87421$164,492$160,383$4,1093
Payment processing and account verification16,80435,196(18,392)(52)58,025162,937(104,912)(64)
Transaction reversal losses10,86115,731(4,870)(31)36,62190,759(54,138)(60)
Miner fees5,6876,308(621)(10)25,378127,281(101,903)(80)
Other5,5641,8543,71020010,6305,5295,10192
Total transaction expense$90,577$101,876$(11,299)(11)$295,146$546,889$(251,743)(46)

The decrease in transaction expense was driven by the following:

  • an increase for the three months ended September 30, 2023, compared to the three months ended September 30, 2022, in blockchain rewards distributed to customers for their participation in blockchain activities such as staking, which generally increased in line with blockchain rewards revenue;

  • a decrease in payment processing and account verification expenses, driven primarily by Trading Volume declines of 52% and 54%;

  • a decrease in transaction reversal losses, driven primarily by the decrease in Trading Volumes noted above, combined with our efforts to reduce reversals through optimization of our fraud monitoring processes; and

  • a decrease in miner fees for the nine months ended September 30, 2023 from the prior year comparative period, driven by a decrease in blockchain transmission volume and significant investments in batching and other optimizations in onchain activity. Though the dollar impacts of these drivers are not individually quantifiable, we estimate approximately 65% of the decrease is attributable to transmission volume, which was impacted by customer withdrawals, corporate wallet movements, and lower blockchain network fees such as Ethereum gas prices, while the remainder is attributable to optimizations.

Technology and development expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Personnel-related(1)$241,000$406,400$(165,400)(41)$714,500$1,223,300$(508,800)(42)
Website hosting and infrastructure40,60096,300(55,700)(58)142,800338,700(195,900)(58)
Amortization of capitalized software24,85732,161(7,304)(23)88,61188,885(274)—
Other16,29921,477(5,178)(24)55,54385,366(29,823)(35)
Total technology and development expenses$322,756$556,338$(233,582)(42)$1,001,454$1,736,251$(734,797)(42)

(1) Personnel-related includes cash and stock-based compensation expense.

Technology and development expenses decreased due to the following:

  • a decrease in personnel-related expenses driven primarily by a 24% and 25% decrease in average technology and development headcount following our workforce reductions in 2023 and 2022. This decrease in average headcount reduced personnel-related expenses by $101.4 million and $309.0 million. Further, stock-based compensation decreased by an additional $64.0 million and $199.7 million due to vesting and roll-off of non-recurring multi-year stock-based compensation awards; and

  • a decrease in website hosting and infrastructure expenses due to our investments in more efficient and modern infrastructure and architecture, both in our customer-facing products and internal tooling.

Sales and marketing expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Personnel-related(1)$38,152$31,438$6,71421$109,756$108,312$1,4441
Marketing programs23,87129,979(6,108)(20)76,815248,412(171,597)(69)
Other16,15514,4711,6841239,43660,262(20,826)(35)
Total sales and marketing expenses$78,178$75,888$2,2903$226,007$416,986$(190,979)(46)

(1) Personnel-related includes cash and stock-based compensation expense.

Sales and marketing expenses decreased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, primarily due to reduced media and brand spend from in-house efficiencies as we actively lowered our investment given the decline in year-over-year revenue. Sales and marketing expenses remained relatively flat for the three months ended September 30, 2023, as compared to the three months ended September 30, 2022.

General and administrative expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Personnel-related (excluding customer support)(1)$134,269$151,619$(17,350)(11)$382,791$449,526$(66,735)(15)
Customer support41,369101,487(60,118)(59)112,422431,945(319,523)(74)
Professional services35,27741,040(5,763)(14)112,860114,020(1,160)(1)
Other41,71545,011(3,296)(7)152,306227,413(75,107)(33)
Total general and administrative expenses$252,630$339,157$(86,527)(26)$760,379$1,222,904$(462,525)(38)

(1) Personnel-related includes cash and stock-based compensation expense.

General and administrative expenses decreased predominantly driven by the following:

  • a decrease in personnel-related expenses excluding customer support, driven primarily by a 20% and 12% decrease in average general and administrative headcount, excluding customer support, as a result of the workforce reductions in June 2022 and January 2023;

  • a decrease in customer support costs, reflecting $40.8 million and $229.8 million of reductions in costs of 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 decreases of $19.3 million and $89.7 million in customer support personnel-related expenses resulting from the workforce reductions discussed above; and

  • a $39.3 million decrease in taxes, licenses, and fees for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, due primarily to the application of certain indirect tax rules and our facts, leading to a reduction in these taxes included within other in the table above.

Restructuring expense

Restructuring expense was negative $0.9 million for the three months ended September 30, 2023 due to the release of accruals for certain separation pay expenses and other personnel costs that were recorded as of June 30, 2023 but not utilized. Restructuring expense was $142.6 million for the nine months ended September 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 negative $1.2 million and $41.2 million for the three and nine months ended September 30, 2022, respectively, and was driven by separation pay and other personnel costs related to the workforce reduction in June 2022 and the subsequent release of accruals of certain costs related thereto that were not utilized.

Crypto asset impairment, net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Gross crypto asset impairment expense$22,868$25,918$(3,050)(12)$77,151$689,077$(611,926)(89)
Recoveries(15,688)(13,768)(1,920)14(60,062)(34,115)(25,947)76
Crypto asset impairment, net$7,180$12,150$(4,970)(41)$17,089$654,962$(637,873)(97)

Crypto asset impairment, net decreased for the nine months ended September 30, 2023, as compared to the nine months ended September 30, 2022, driven by gross crypto asset impairments in the prior year that resulted from the challenging crypto market conditions discussed in the section titled “—Key Business Metrics” above, paired with lower crypto asset balances held in current year. The average month end balances of crypto assets held during the respective reporting periods decreased 3% and 32%. These impairments were offset in part by higher expense recoveries as we sold previously impaired assets at recovered prices.

Other operating expense (income), net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Platform-related incidents and losses$3,778$31,728$(27,950)(88)$9,759$77,095$(67,336)(87)
(Gain) loss on derivatives(12,312)(11,939)(373)3(25,793)(9,780)(16,013)164
Other12,04642,857(30,811)(72)5,22833,908(28,680)(85)
Total other operating expense (income), net$3,512$62,646$(59,134)(94)$(10,806)0$101,223$(112,029)(111)

Changes in other operating expense (income), net were predominantly driven by lower platform-related incidents and losses as a result of implementing stricter monitoring processes and controls to mitigate incidents on our platform. We also saw gains on crypto asset derivatives in 2023, driven primarily by changes in the market values of assets underlying derivative assets and liabilities. See Note 13. Derivatives to the condensed consolidated financial statements for further details.

Interest expense

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Interest expense$20,821$21,507$(686)(3)$64,029$67,301$(3,272)(5)

There were no material changes in interest expense during the periods presented.

Other (income) expense, net

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Losses on foreign exchange$382$64,509$(64,127)(99)$10,916$198,891$(187,975)(95)
(Gains) losses on strategic investments(48,488)(3,408)(45,080)1323(38,330)70,153(108,483)(155)
Gain on extinguishment of long-term debt(81,591)—(81,591)100(99,446)—(99,446)100
Other(5,610)4,598(10,208)(222)(4,746)2,023(6,769)(335)
Total other (income) expense, net$(135,307)$65,699$(201,006)(306)$(131,606)$271,067$(402,673)(149)

Other (income) expense, net changed predominantly driven by the following:

  • a decrease in net realized and unrealized losses on foreign exchange primarily due to improvement in foreign exchange risk management;

  • net gains on strategic investments driven by a gain of $49.9 million resulting from an equity investment transaction with Circle US Holdings, Inc. during the third quarter of 2023; and

  • a net gain of $17.8 million on the repurchase of certain of our 2026 Convertible Notes and of $81.6 million on the repurchase of certain of our Senior Notes during the second and third quarters of 2023, respectively. Please see Note 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.

Provision for (benefit from) income taxes

Three Months Ended September 30,ChangeNine Months Ended September 30,Change
20232022$%20232022$%
(in thousands)(in thousands)
Provision for (benefit from) income taxes$36,926$(99,055)$135,981(137)$(31,132)$(425,756)$394,624(93)

The benefit from income taxes decreased due to lower tax benefits from a reduction of pretax loss, partially offset by certain stock-based compensation and a lower 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 financial 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. There are a number of limitations related to Adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent of Adjusted EBITDA. Some of these limitations are Adjusted EBITDA excludes:

  • provision for (benefit from) income taxes;

  • depreciation and intangible assets amortization expense and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future;

  • interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us;

  • the impact of crypto asset borrowing costs, a non-cash expense, which is similar in nature to interest expense on our crypto asset borrowings, which has been recurring, and may in the future recur;

  • stock-based compensation expense, which has 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;

  • crypto asset impairment, net, represents impairment on crypto assets still held and is a non-cash expense, which has been recurring, and may in the future recur, although the crypto assets impaired may be sold in the future at a price at or higher than the price the assets have been impaired to;

  • impairment on investments, net, a non-cash expense, which has been recurring, and may in the future recur, although the impaired investments may be sold in the future at a price lower, at or higher than the price the assets have been impaired to;

  • impairment on property and equipment and intangible assets are infrequent in nature and are non-cash adjustments;

  • the impact of restructuring, which is infrequent and not related to normal operations but impacted our results in 2022 and 2023;

  • gain on extinguishment of long-term debt due to repurchases prior to maturity, a non-cash adjustment, which has been recurring, and may in the future recur;

  • the impact of unrealized foreign exchange gains or losses and fair value adjustments on foreign exchange derivatives for hedging activities, non-cash adjustments, which have been recurring, and may in the future recur;

  • the impact of fair value gain or loss on derivatives, a non-cash expense, which has been recurring, and may in the future recur;

  • non-recurring legal reserves and related costs, which reduces cash available to us; and

  • a non-recurring fee and write-off related to an early lease termination, a non-recurring accrual for value-added tax related to our Irish operations, and non-cash unrealized gains or losses on contingent consideration, which we have consolidated into the line item “other adjustments” because they are not material individually.

In addition, other companies, including companies in our industry, may calculate Adjusted EBITDA differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our disclosure of Adjusted EBITDA as a tool for comparison. A reconciliation is provided below for Adjusted EBITDA to net loss, the most directly comparable financial measure stated, in accordance with GAAP. Investors are encouraged to review the related GAAP financial measure and the reconciliation of Adjusted EBITDA to net income (loss), 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 or gain 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 September 30,Nine Months Ended September 30,
2023202220232022
(in thousands)(in thousands)
Net loss$(2,265)$(544,635)$(178,566)$(2,067,948)
Adjusted to exclude the following:
Provision for (benefit from) income taxes36,926(99,055)(31,132)(425,756)
Depreciation and amortization31,96740,114110,157113,721
Interest expense20,82121,50764,02967,301
Crypto asset borrowing costs7069453,4453,947
Stock-based compensation218,153391,441616,7851,135,078
Crypto asset impairment, net(1)8,897—29,481586,823
(Gain) loss on investments, net(2)(48,498)1,577(40,319)70,866
Other impairment(3)1,9561,12210,0699,071
Restructuring(860)(1,232)142,59441,221
Gain on extinguishment of long-term debt, net(81,591)—(99,446)—
Change in unrealized foreign exchange87877,18117,314192,253
Fair value gain on foreign exchange derivatives—(22,935)—(22,935)
Fair value (gain) loss on derivatives(402)2,399(14,332)3,351
Non-recurring legal reserves and related costs———14,250
Other adjustments, net(5,744)15,67928,46931,476
Adjusted EBITDA$180,944$(115,892)$658,548$(247,281)

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

(2)Includes impairment and net gains on investments.

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

Liquidity and Capital Resources

Cash and cash equivalents, restricted cash, and USDC

As of September 30, 2023 and December 31, 2022, our cash and cash equivalents, restricted cash, and USDC balances consisted of the following (in thousands):

September 30,December 31,
20232022
Cash and cash equivalents:
Cash equivalents(1)$3,680,337$2,250,065
Cash held at banks1,257,0012,031,749
Cash held at venues163,461143,207
Total cash and cash equivalents$5,100,799$4,425,021
Restricted cash(2)$26,319$25,873
USDC(3)400,799861,149

(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. As of September 30, 2023 and December 31, 2022, we had USDC held at venues with a fair value of $5.7 million and an immaterial amount, respectively.

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. In August and September 2023, we repurchased $262.5 million of aggregate principal amount of the 2031 Senior Notes, resulting in cash payments of $177.2 million. The transactions represented an approximately 33% discount to par value. Following the close of these transactions, the remaining outstanding principal balance of the 2026 Convertible Notes, 2028 Senior Notes, and 2031 Senior Notes was approximately $1.4 billion, $1.0 billion, and $0.7 billion, respectively, for a total remaining outstanding principal balance of $3.1 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 September 30, 2023, our credit ratings with S&P Global Ratings and Moody’s remain unchanged from these downgraded levels.

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 September 30, 2023, we held $392.9 million of crypto assets for investment and operating purposes measured 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 on these transactions 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 September 30, 2023 and December 31, 2022, the cost basis and fair value of our crypto assets held at impaired cost was as follows (in thousands):

September 30,December 31,
20232022
Cost**(1)**Fair Value**(2)**Cost**(1)**Fair Value**(2)**
Crypto assets held as investments:
Bitcoin(3)$126,650$247,580$111,553$151,792
Ethereum(3)128,834198,81691,231138,714
Other55,389125,92285,883135,763
Total crypto assets held as investments310,873572,318288,667426,269
Crypto assets held for operating purposes:
Bitcoin$11,552$12,400$5,390$5,833
Ethereum25,65432,37624,40525,796
Other44,79756,87737,78259,127
Total crypto assets held for operating purposes82,003101,65367,57790,756
Total crypto assets held(4)(5)$392,876$673,971$356,244$517,025

(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.

(4)Excludes crypto assets borrowed at impaired cost. See Note 7. Goodwill, Intangible Assets, Net, and Crypto Assets Held 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.

(5)As of September 30, 2023 and December 31, 2022, we had crypto assets held at venues with a fair value of $24.4 million and an immaterial amount, 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 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 $8.6 million and $30.5 million of impairment expense on our crypto asset investment portfolio for the three and nine months ended September 30, 2023, respectively.

We enter into fiat and crypto asset borrowing arrangements with eligible institutional customers. These borrowings are generally open-term or have a term of less than one year. Such activities are not material to our business. 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 September 30, 2023.

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

September 30, 2023December 31, 2022
UnitsFair ValueUnitsFair Value
Asset
USDC46,145,736$46,14647,633,897$47,634
Bitcoin——65010,743
FiatN/A3,935N/A41,630
Total$50,081$100,007

Our business model does not expose us to liquidity risk if we have excessive redemptions or withdrawals from customers. 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. As of September 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.

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 September 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 credit rating 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.

As of September 30, 2023, our material cash requirements and contractual obligations arising in the normal course of business due within the next 12 months and in total consisted of the following (in thousands):

Amounts Due
Next 12 MonthsTotal
Operating leases(1)$12,460$18,286
Non-cancelable purchase obligations(2)272,812558,945
2026 Convertible Notes(3)
Interest6,84820,025
Principal—1,373,013
2028 Senior Notes(4)
Interest33,750185,625
Principal—1,000,000
2031 Senior Notes(4)
Interest26,734227,230
Principal—737,457
Other(5)19,74519,745

(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) Remaining amounts committed under consent order with NYDFS. 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, 18. Income Taxes and 20. 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 our short and long term material cash requirements and contractual obligations as of September 30, 2023.

Cash flows

Nine Months Ended September 30,
20232022
(in thousands)
Net cash provided by (used in) operating activities$928,137$(839,983)
Net cash used in investing activities(85,117)(637,698)
Net cash used in financing activities(1,734,128)(4,205,918)
Net decrease in cash, cash equivalents, and restricted cash$(891,108)$(5,683,599)
Effect of exchange rates on cash, cash equivalents, and restricted cash$(27,353)$(376,261)
Change in customer custodial cash$(1,594,685)$(3,935,128)

Operating activities

Our largest source of cash provided by operations are revenues generated from transaction fees and stablecoin revenue. Our primary uses of cash from operating activities include payments for website hosting services, payments to employees for compensation, outsourced customer support costs, payments to tax authorities for income taxes, and other general corporate expenditures.

Net cash provided by operating activities increased by $1.8 billion compared to the prior year period primarily due to decreases in net loss as a result of decreases in overall working capital needs year-over-year due to our ongoing cost management efforts. Other changes in assets and liabilities impacting our cash inflow include a $763.0 million increase in cash provided by USDC conversions primarily to optimize our corporate balance, a decrease in prepaid expenses driven by a $141.0 million decrease due to a return of cash collateral posted against foreign currency forward contracts which were closed in the current period due to lower foreign exchange volatility and improved foreign exchange risk management, and an increase in accrued expenses driven by $84.0 million in accrued bonuses due to higher performance achievements. These movements were offset by a $90.4 million increase in net deferred tax assets primarily due to additional pretax losses year-over-year.

Investing activities

Net cash used in investing activities decreased by $552.6 million compared to the prior year period due to:

  • a $559.8 million decrease in cash used related to decreases in net crypto asset purchases for our corporate investment portfolio in early 2022 and a reduction in net crypto asset purchases needed to support customer trading on our platform as a result of investments in database and network infrastructure to reduce unanticipated system disruptions; and

  • a $155.4 million decrease in cash used related to fewer business combinations due to market conditions; offset by

  • a $207.7 million increase in cash used for net loans originated and repaid related to an increase in consumer demand for these loans due to stabilizing interest rates and increasing crypto asset prices which are used for collateral against these loans thereby increasing borrowing power.

Financing activities

Net cash used in financing activities decreased by $2.5 billion compared to the prior year period primarily due to a $2.6 billion decrease of customer custodial cash liabilities as a result of a decline in fiat balances held on our platform due to a decrease in market sentiment, as discussed in the section titled “—Key Metrics” above, and customers seeking higher yields on cash holdings in banks and USDC holdings on Coinbase. The decrease in cash used was further caused by a $84.8 million decrease of taxes paid related to net shares settlement of equity awards due the overall decrease in headcount and the decrease in our stock price on the vesting dates, the taxable event. Our choice to net settle employee awards and pay taxes is routinely evaluated by management and may change in the future. These decreases were slightly offset by an increase of $222.7 million in cash used for long-term debt repurchases that began in June 2023.

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.

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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