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. Th**e following discussion and analysis contains 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*. 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 c**onsolidated* subsidiaries.

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.

Our financial performance during the first quarter of 2024 reflects our focused execution on product expansion, ongoing operational discipline, and strong crypto market conditions. For the three months ended March 31, 2024 we generated $1.6 billion of Net revenue and $1.2 billion in net income.

For the remainder of 2024, our primary focus will be on three main priorities. First we plan to drive revenue growth by expanding our transaction and stablecoin revenue streams. This will involve international expansion and deeper integration of USDC into the cryptoeconomy. Second, we plan to enhance the utility of crypto by promoting the use of stablecoins and supporting developers on our Base platform. Lastly, we plan to continue to work towards achieving regulatory clarity for the industry. Overall, the first quarter of 2024 was highly productive, and we remain dedicated to our mission of increasing economic freedom worldwide.

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 March 31,% Change
20242023
MTUs (in millions)8.08.4(5)
Trading Volume (in billions)$312$145115
Net income (loss) (in millions)$1,176$(79)nm
Adjusted EBITDA(1) (in millions)$1,014$287253

nm - not meaningful

(1)See the section titled “Non-GAAP Financial Measure” below for a reconciliation of Net income (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. Quarterly MTUs are the average of each month’s MTUs in each respective quarter. 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.

MTUs declined for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023 due in part to a decrease in staking users as a result of updates we made to our staking service offset by an increase in trading users which led to higher Trading Volume and net revenue in the current period.

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 assets 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 market capitalization, crypto asset volatility, macroeconomic conditions, and our share of total crypto market spot trading volume. In periods of high crypto asset prices and crypto asset volatility, we have experienced correspondingly high levels of Trading Volume on our platform.

Our Trading Volume in future periods will depend on the relative availability and adoption of Bitcoin, Ethereum, and other crypto assets.

Three Months Ended March 31,% Change
20242023
Trading Volume (in billions):
Consumer$56$21167
Institutional256124106
Total$312$145115
Trading Volume by crypto asset:
Bitcoin33%32%3
Ethereum1324(46)
USDT(1)11nmnm
Other crypto assets(2)4345(4)
Total(3)100%100%
Transaction revenue by crypto asset:
Bitcoin30%36%(17)
Ethereum1518(17)
Other crypto assets(2)554620
Total100%100%

nm - not meaningful

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

(2)No crypto assets other than those shown in this table individually represented more than 10% of our Trading Volume or our transaction revenue.

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

For the three months ended March 31, 2024 as compared to 2023, Trading Volume increased 115% primarily due to:

  • an increase in Crypto Asset Volatility1 of 12% and an increase in total crypto market capitalization of 94%. These two macro inputs have historically been heavily correlated with Trading Volume and are typically influenced by overall crypto market sentiment, activity in the crypto market and higher average crypto asset prices; and

  • an increase in our market share, as Trading Volume growth outpaced total crypto market spot trading volume growth. This includes outperforming spot market trading volume in the United States, which grew 78%, where our business is concentrated, as we were able to capture a larger portion of the trading activity due to our competitive position and product strategy.

Components of Results of Operations

Revenue

We generate revenue from transactions, subscription and services, and other activities. The vast majority of our total revenue is generated in the United States, which is based on the domicile of the customers.

Net revenue

Transaction revenue

Transaction revenue is generated primarily from transaction fees on consumer and institutional trades that occur on our platform. We also earn other transaction revenue, which primarily consists of Base and payment-related revenue.

We provide a trade matching service for users to buy, sell, or convert crypto assets through our platform. This trading activity is the primary source of our transaction revenue and core to the service we offer. Transaction revenue is generated primarily from transaction fees applied to spot trades that are executed by both consumer and institutional customers 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. Transaction revenue is directly correlated with Trading Volume, which is driven by the number of spot trade transactions processed on our platform. 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, which is the total amount of USDC in circulation, and the prevailing interest rate environment.

1 Crypto Asset Volatility represents our internal measure of crypto asset 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.

  • Blockchain rewards: We operate a proof-of-stake service that enables customers to stake eligible crypto assets and validate transactions on certain blockchain networks. This allows customers to earn rewards from the networks while maintaining ownership of their assets. Revenue is measured based on the number of tokens received and the fair value of the token at contract inception.

  • Interest and finance fee income: We earn interest on customer custodial funds held at third-party depository institutions, which is influenced by Trading Volume and prevailing interest rates. As consumer Trading Volume increases, customer custodial funds on our platform also tend to increase. Additionally, we earn interest and finance fee income from loans issued to institutional customers through Prime Financing. The amount earned depends on the total loans issued and the prevailing interest or contractual rate.

  • Custodial fee revenue: We earn custodial fee revenue based on a percentage of the daily value of crypto assets held within our cold storage solutions. 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 subscription and services revenue primarily comprises revenue from Coinbase One, developer product revenue, including items such as delegation, participation, and infrastructure services, and revenue from other subscription licenses.

Other revenue

Other revenue includes interest income earned on our corporate cash and cash equivalents.

Operating expenses

Operating expenses consist of transaction expense, technology and development, sales and marketing, general and administrative, gains on crypto assets held for operations, net (following our adoption of ASU No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”)), crypto asset impairment, net (prior to our adoption of ASU 2023-08), restructuring, and other operating expense, net. Personnel-related expense in all of these categories includes employee cash, stock-based compensation expense, and other employee benefits.

Transaction expense

Transaction expense includes costs directly associated with revenues. For transaction revenues, these expenses include costs to operate our platform, process crypto assets trades, perform wallet services, and transaction rebates and incentives earned by customers. For subscription and services revenues, the primary expenses are the rewards distributed to users for staking their assets. 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 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 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 included within Other non-current assets in our Condensed Consolidated Balance Sheets.

Sales and marketing

Sales and marketing expenses primarily include personnel-related expenses, marketing programs costs, USDC rewards, and costs related to customer acquisition.

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 expenses also include costs of professional services and software subscriptions for support services.

Gains on crypto assets held for operations, net

Starting in the first quarter of 2024, gains on crypto assets held for operations, net, includes realized and unrealized gains and losses on our crypto assets held for operations.

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. Crypto asset impairment, net is no longer recorded as a result of the adoption of ASU 2023-08.

Restructuring

Restructuring expenses comprise separation pay, stock-based compensation, and other personnel costs related to reductions in our headcount. For more information, see Note 3. Restructuring of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Other operating expense (income), net

Other operating expense (income), net includes fair value gains and losses related to derivatives as well as platform-related incidents and losses. Because these components fluctuate with market conditions, Other operating expense (income), net can vary widely between periods.

Interest expense

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

Gains on crypto assets held for investment, net

Starting in the first quarter of 2024, gains on crypto assets held for investment, net includes realized and unrealized gains and losses on our crypto assets held for investment.

Other (income) expense, net

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

  • realized and unrealized foreign currency exchange gains and losses;

  • realized and unrealized fair value gains and losses on strategic equity investments;

  • fair value remeasurement gains and losses on crypto asset loan receivables on assets lent from our crypto assets held for investment portfolio; and

  • fair value remeasurement gains on other financial instruments held for investment.

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 March 31,
20242023
$%****(1)$%****(1)
Revenue:
Net revenue$1,587,67797$736,39895
Other revenue49,893336,1315
Total revenue1,637,570100772,529100
Operating expenses:
Transaction expense217,4071396,36912
Technology and development357,86322358,03146
Sales and marketing98,585663,9768
General and administrative287,23618248,76132
Gains on crypto assets held for operations, net(86,358)(5)——
Crypto asset impairment, net——17,9622
Restructuring——144,48919
Other operating expense (income), net2,376—(33,184)(4)
Total operating expenses877,10954896,404116
Operating income (loss)760,46146(123,875)(16)
Interest expense19,071121,5363
Gains on crypto assets held for investment, net(650,429)(40)——
Other (income) expense, net(45,605)(3)20,2653
Income (loss) before income taxes1,437,42488(165,676)(21)
Provision for (benefit from) income taxes261,17916(86,780)(11)
Net income (loss)$1,176,24572$(78,896)(10)

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

Comparison of the three months ended March 31, 2024 and 2023

Revenue

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Transaction revenue$1,076,741$374,713$702,028187
Subscription and services revenue510,936361,685149,25141
Other revenue49,89336,13113,76238
Total revenue$1,637,570$772,529$865,041112

For the three months ended March 31, 2024 and 2023 we generated 83% and 89%, respectively, of total revenue in the United States. No other country accounted for more than 10% of total revenue during the periods presented. International revenue comprised mainly of transaction revenue in all periods presented.

Transaction revenue

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Consumer, net(1)$935,212$329,152$606,060184
Institutional, net85,39222,31163,081283
Other transaction revenue(1)56,13723,25032,887100
Total transaction revenue$1,076,741$374,713$702,028187

(1)Prior period amounts were recast to conform to current period presentation. See Note 5. Revenue of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Transaction revenue increased for the three months ended March 31, 2024 as compared to 2023, primarily due to:

  • an increase in consumer transaction revenue due to a 167% increase in consumer Trading Volume;

  • an increase in institutional transaction revenue of $23.8 million due to a 106% increase in institutional Trading Volume and an increase of $39.3 million as a result of an 85% increase in the average blended fee rate. The average blended fee rate increased as there was a significant reduction in the discounts that we offered to certain market maker customers beginning in February 2023; and

  • an increase in other transaction revenue primarily due to Base revenue, resulting from the launch of Base in the third quarter of 2023.

Subscription and services revenue

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Stablecoin revenue$197,317$198,898$(1,581)(1)
Blockchain rewards150,92973,74977,180105
Interest and finance fee income(1)66,66343,31323,35054
Custodial fee revenue32,34117,04315,29890
Other subscription and services revenue(1)63,68628,68235,004122
Total subscription and services revenue$510,936$361,685$149,25141

(1)Prior period amounts were recast to conform to current period presentation. See Note 5. Revenue of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Subscription and services revenue increased for the three months ended March 31, 2024 as compared to 2023, primarily due to:

  • Stablecoin revenue remained flat year over year due to offsetting trends. Revenue was negatively impacted due to lower off-platform USDC market capitalization, however this reduction was offset by higher interest rates, which rose 84 basis points, and a new arrangement with the issuer of USDC;

  • an increase in blockchain rewards, driven by higher average crypto asset prices, resulting in an increase of $51.2 million, with the remainder due to an increase in native units staked;

  • an increase in interest and finance fee income due to $11.6 million in interest income generated on customer custodial cash primarily as a result of higher average earned interest rates, which were up 84 basis points, and higher finance fees driven by increased demand for our Prime Financing products;

  • an increase in custodial fee revenue of $17.1 million due to an increase of $75.5 billion in average crypto assets under custody as a result of higher asset prices and $7.5 million of net native unit inflows, partially offset by a $9.3 million decrease in fee rates; and

  • an increase in other subscription and services revenue due to a $17.0 million increase from developer products as a result of higher average crypto asset prices, and an increase of $11.8 million in Coinbase One revenue driven by an increase of 136% in paid subscribers.

Other revenue

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Corporate interest and other income$49,893$36,131$13,76238
Total other revenue$49,893$36,131$13,76238

Other revenue increased for the three months ended March 31, 2024 as compared to 2023, primarily due to higher average earned interest rates on corporate balances, which rose 88 basis points, as well as higher average corporate balances.

Operating expenses

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Transaction expense$217,407$96,369$121,038126
Technology and development357,863358,031(168)—
Sales and marketing98,58563,97634,60954
General and administrative287,236248,76138,47515
Gains on crypto assets held for operations, net(86,358)—(86,358)100
Crypto asset impairment, net—17,962(17,962)(100)
Restructuring—144,489(144,489)(100)
Other operating expense (income), net2,376(33,184)35,560(107)
Total operating expenses$877,109$896,404$(19,295)(2)

In order to achieve our goal of positive Adjusted EBITDA for the remainder of 2024, we are committed to being adaptable and responsive to overall macro market conditions and revenue opportunities. We plan to dynamically adjust our expense base, increasing or decreasing it as needed, especially with respect to certain variable expenses. In the second quarter of 2024, we expect technology and development and general and administrative expenses to grow due to increased customer support and infrastructure expenses associated with higher trading volumes. Additionally, we expect sales and marketing expenses to grow significantly as compared to the first quarter of 2024, primarily driven by USDC customer rewards and seasonally higher NBA sponsorship related spend.

Transaction expense

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Blockchain rewards fees$105,454$52,610$52,844100
Payment processing and account verification35,48224,41111,07145
Transaction reversal losses19,97411,7588,21670
Miner fees33,3406,15727,183441
Other23,1571,43321,724nm
Total transaction expense$217,407$96,369$121,038126

nm - not meaningful

Transaction expense increased for the three months ended March 31, 2024 as compared to 2023, primarily due to:

  • an increase in blockchain rewards fees, which increased in line with blockchain rewards revenue;

  • an increase in payment processing and account verification fees reflecting higher Trading Volume of 115%, and growth in new customer sign up activity;

  • an increase in transaction reversal losses driven by the increased transaction revenue. Despite the increase, the transaction reversal loss as a percentage of transaction revenue decreased driven by our efforts to optimize our fraud monitoring processes;

  • an increase in miner fees primarily driven by $20.1 million attributed to higher average crypto asset prices and increased blockchain transmission volumes from both customer withdrawals and corporate wallet movements, as well as higher blockchain network fees, such as Ethereum gas prices which rose 39%; and

  • an increase in other largely due to higher transaction rebates and incentives earned by institutional customers.

Technology and development expense

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Personnel-related$266,581$243,013$23,56810
Website hosting and infrastructure expenses49,87357,005(7,132)(13)
Amortization expense23,97233,608(9,636)(29)
Other17,43724,405(6,968)(29)
Total technology and development expenses$357,863$358,031$(168)—

Technology and development expenses remained flat for the three months ended March 31, 2024, as compared to 2023, as higher personnel-related expenses were offset by decreased website hosting and infrastructure expenses, amortization expense, and other, where no individual material changes were noted. Personnel-related expenses were higher due to an increase in stock-based compensation expense as a result of the 2023 annual employee equity awards being granted at a lower stock price as compared to the 2024 annual employee equity awards.

Sales and marketing expense

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Personnel-related$35,492$32,881$2,6118
Marketing programs25,70021,1064,59422
USDC rewards26,5623,20723,355728
Other10,8316,7824,04960
Total sales and marketing expenses$98,585$63,976$34,60954

Sales and marketing expenses increased for the three months ended March 31, 2024, as compared to 2023, primarily due to higher USDC rewards payouts driven by growth in on-platform USDC balances.

There were no material changes to note within personnel-related expense, marketing programs, or other.

General and administrative expense

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Personnel-related (excluding customer support)$137,470$125,449$12,02110
Customer support39,36431,8857,47923
Professional services38,39134,3134,07812
Other72,01157,11414,89726
Total general and administrative expenses$287,236$248,761$38,47515

General and administrative expenses increased for the three months ended March 31, 2024, as compared to 2023, primarily due to:

  • higher personnel-related expenses driven by increased stock-based compensation expense as a result of the 2023 annual employee equity awards being granted at a lower stock price as compared to the 2024 annual employee equity rewards;

  • an increase in customer support costs as a result of increased capacity needs. Our capacity needs may increase in periods following higher Trading Volumes; and

  • an increase in legal costs included within other.

There were no material changes to note within professional services expense.

Gains on crypto assets held for operations, net

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Gains on crypto assets held for operations, net$(86,358)$—$(86,358)100

Gains on crypto assets held for operations, net was $86.4 million for the three months ended March 31, 2024. Of the total, $57.0 million represented realized gains recognized on crypto assets sold during the period, with the remaining attributed to unrealized gains on our crypto assets held for operations.

Crypto asset impairment, net

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Gross crypto asset impairment expense$—$28,935$(28,935)(100)
Recoveries—(10,973)10,973(100)
Total crypto asset impairment, net$—$17,962$(17,962)(100)

Crypto asset impairment expense, net was $18.0 million for the three months ended March 31, 2023, driven by gross crypto asset impairments from the challenging crypto market conditions offset in part by expense recoveries as we sold previously impaired assets at recovered prices. There was no crypto asset impairment, net for the three months ended March 31, 2024 as a result of our adoption of ASU 2023-08.

Restructuring expense

Restructuring expense was $144.5 million for the three months ended March 31, 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. There were no restructuring expenses for the three months ended March 31, 2024.

Other operating expense (income), net

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Platform-related incidents and losses$195$2,392$(2,197)(92)
Losses (gains) on derivatives, net1,579(37,096)38,675(104)
Other6021,520(918)(60)
Total Other operating expense (income), net$2,376$(33,184)$35,560(107)

Changes in other operating expense (income), net for the three months ended March 31, 2024 as compared to 2023 were primarily due to losses (gains) on derivatives, net. Gains on derivatives, net was $37.1 million for the three months ended March 31, 2023 which reflected crypto assets realized gains recognized offset by net realized losses on the settlement of crypto asset futures. There were no material changes within losses (gains) on derivatives, net for the three months ended March 31, 2024. See Note 13. Derivatives of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

There were no material changes to note within platform-related incidents and losses or other.

Interest expense

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Interest expense$19,071$21,536$(2,465)(11)

There were no material changes to note within interest expense for the three months ended March 31, 2024 as compared to 2023.

Gains on crypto assets held for investment, net

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Gains on crypto assets held for investment, net$(650,429)$—$(650,429)100

Gains on crypto assets held for investment, net was $650.4 million for the three months ended March 31, 2024. Of the total, $633.4 million represented gains from the fair value remeasurement of our crypto assets held for investment.

Other (income) expense, net

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Foreign exchange losses, net$1,651$13,878$(12,227)(88)
Strategic investment losses, net8496,319(5,470)(87)
Gains on crypto asset loan receivables(25,526)—(25,526)100
Gains on other financial instruments, net(13,186)—(13,186)100
Other(9,393)68(9,461)nm
Total other (income) expense, net$(45,605)$20,265$(65,870)(325)

nm - not meaningful

Other (income) expense, net changed for the three months ended March 31, 2024, as compared to 2023, primarily due to:

  • a decrease in net foreign exchange losses due to improvements in foreign exchange risk management;

  • unrealized fair value remeasurement gains on crypto asset loans to customers issued from our crypto assets held for investment portfolio; and

  • unrealized fair value remeasurement gains on other financial instruments.

There were no material changes to note within strategic investment losses, net or other.

Provision for (benefit from) income taxes

Three Months Ended March 31,Change
20242023$%
(in thousands)(in thousands)
Provision for (benefit from) income taxes$261,179$(86,780)$347,959(401)

Provision for income taxes increased for the three months ended March 31, 2024 as compared to 2023 primarily due to the tax provision on an increase in pretax income, partially offset by additional tax benefits from stock-based compensation.

Non-GAAP Financial Measure

In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP financial performance measure, is useful information to help investors evaluate our operating performance because it: enables investors to compare this measure and component adjustments to similar information provided by peer companies and our past financial performance; provides additional company-specific adjustments for certain items that may be included in income from operations but that we do not consider to be normal, recurring, operating expenses (or income) necessary to operate our business given our operations, revenue generating activities, business strategy, industry, and regulatory environment; and provides investors with visibility to a measure management uses to evaluate our ongoing operations and for internal planning and forecasting purposes.

Limitations of Adjusted EBITDA

We believe that Adjusted EBITDA may be helpful to investors for the reasons noted above. 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 that Adjusted EBITDA excludes:

  • provision for (benefit from) income taxes;

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

  • 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;

  • 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;

  • net gains or losses on our crypto assets held for investment, net, after the adoption of ASU 2023-08;

  • non-recurring lease charges, which represent a non-recurring fee and write-off related to an early lease termination;

  • impairment on crypto assets still held, net, which represents impairment on crypto assets still held and is a non-cash expense, prior to the adoption of ASU 2023-08;

  • Other (income) expense, net, which represents realized and unrealized foreign exchange gains or losses, gains or losses on strategic investments, and other non-operating income and expense activity; and

  • the impact of restructuring, which is not related to normal operations but impacted our results in 2023.

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 income (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.

Revised Definition of Adjusted EBITDA

During the first quarter of 2024, we revised our definition of Adjusted EBITDA as follows and recast prior periods for comparability:

  • to adjust for other (income) expense, net in total, as the entire line item represents non-operating activity, and as a majority of the activity recorded in Other (income) expense, net had been included in the calculation of Adjusted EBITDA previously in separate rows while this combined presentation is more streamlined and easily reconciled to the Condensed Consolidated Statements of Operations;

  • to revise our definition of Adjusted EBITDA to remove the adjustment for crypto asset borrowing costs on Prime Financing, as even though these costs are akin to interest expense on debt, we believe they represent normal, recurring, operating expenses necessary to expand and grow Prime Financing; and

  • to revise our definition of Adjusted EBITDA to change what is adjusted with respect to gains and losses on crypto assets in connection with the adoption of ASU 2023-08, adjusting post-adoption only for gains and losses on crypto assets held for investment, as they do not represent normal, recurring, operating expenses (or income) necessary to operate our business.

The following table provides a reconciliation of Net income (loss) to Adjusted EBITDA. The prior period comparative reconciliation has been updated to conform to the current period presentation:

Three Months Ended March 31,
20242023
(thousands)
Net income (loss)$1,176,245$(78,896)
Adjusted to exclude the following:
Provision for (benefit from) income taxes261,179(86,780)
Interest expense19,07121,536
Depreciation and amortization29,32741,208
Stock-based compensation224,504198,860
Gain on crypto assets held for investment, net (post-adoption of ASU 2023-08)(650,429)—
Non-recurring lease charges—13,866
Impairment on crypto assets still held, net (pre-adoption of ASU 2023-08)—12,085
Other (income) expense, net(45,605)20,265
Restructuring—144,489
Adjusted EBITDA$1,014,292$286,633
Revised definition no longer adjusts for:
Crypto asset borrowing costs$1,520
Other impairment expense5,527
Revised definition newly adjusts for:
Additional other (income) expense, net(1)(10,028)
Adjusted EBITDA, previous definition$283,652

(1)Represents the portion of Other (income) expense, net that was not previously included as an adjustment to arrive at Adjusted EBITDA.

Liquidity and Capital Resources

There have been no material changes to our liquidity and capital resources from those presented in our Annual Report on Form 10-K for the year ended December 31, 2023, other than those described below.

We continue to believe our existing cash and cash equivalents and USDC 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 USDC and with future cash flows from operations and may satisfy our long-term cash requirements additionally with proceeds from a future equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations and the instruments governing such debt could provide for operating and financing covenants that would restrict our operations.

In 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 March 31, 2024, our credit ratings with S&P Global Ratings and Moody’s remain unchanged from these downgraded levels. A downgrade of our credit rating may adversely affect our ability to raise additional financing, and any future debt offerings or credit arrangements we propose to enter into may be on less favorable terms or terms that may not be acceptable to us.

Cash and cash equivalents, restricted cash, and USDC

As of March 31, 2024 and December 31, 2023, our cash and cash equivalents, restricted cash, and USDC balances consisted of the following (in thousands):

March 31,December 31,
20242023
Cash and cash equivalents:
Cash equivalents(1)$3,037,792$3,682,917
Cash held at banks3,548,8421,367,643
Cash held at venues124,76688,791
Total cash and cash equivalents$6,711,400$5,139,351
Restricted cash(2)$33,499$22,992
USDC**(3)****:**
USDC loaned(4)$268,345$205,645
USDC pledged as collateral(4)221,82729,577
USDC not loaned or pledged370,497340,806
Total USDC$860,669$576,028

(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.

(3)USDC is a stablecoin redeemable on a one-to-one basis for U.S. dollars. While not accounted for as cash or cash equivalents, we treat our USDC holdings as a liquidity resource.

(4)USDC loaned represents loaned assets that do not meet the criteria for derecognition on our Condensed Consolidated Balance Sheets. USDC pledged as collateral represents assets pledged as collateral that do not meet derecognition criteria against our crypto asset borrowings on our Condensed Consolidated Balance Sheets. See Note 6. Collateralized Arrangements and Financing of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional details.

Debt

On March 18, 2024, we issued $1.3 billion in aggregate principal amount of convertible senior notes that mature on April 1, 2030 (“2030 Convertible Notes”), unless converted, redeemed or repurchased on an earlier date. As of March 31, 2024, we held $4.3 billion in aggregate principal amount of debt, including the 2030 Convertible Notes as well as $1.3 billion in aggregate amount of convertible senior notes that mature on June 1, 2026 (“2026 Convertible Notes”), $1.0 billion in aggregate amount of senior notes that mature on October 1, 2028 (“2028 Senior Notes”), and $0.7 billion in aggregate amount of senior notes

that mature on October 1, 2031 (“2031 Senior Notes”).

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.

Crypto assets

We hold crypto assets for investment, operating, borrowing, and as collateral held against institutional customer loans. Effective January 1, 2024, we adopted ASU 2023-08 using a modified retrospective approach and recognized an associated fair value adjustment of $739.5 million on the crypto assets we held at that time. This adjustment caused the carrying values of the crypto assets we already held at the time to reflect their fair values and as such, this adjustment does not represent additional capital resources generated during the first quarter of 2024.

Crypto assets held for investment, net

We view our crypto assets investments as long term holdings and we do not plan to engage in regular trading of crypto assets. Our future earnings and cash flows will be impacted when we choose to monetize our crypto assets held for investment, varying based on the future fair value of such crypto assets.

Crypto assets held for operations, net

We primarily receive crypto assets held for operations as revenue for transaction revenue, blockchain rewards, custodial fee revenue, and other subscriptions and services revenue. Our intent is to convert crypto assets received as a form of payment to cash nearly immediately or use these crypto assets to fulfill corporate expenses. During times of instability in the crypto assets market, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets held for operations are considered 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.

Crypto assets borrowed and borrowings

We borrow crypto assets from eligible institutional customers. These borrowings generally have open-ended terms or have a term of less than one year. 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 assets borrowed or the value of crypto assets collateral. If crypto assets prices rise, we will post additional collateral to maintain required collateral loan ratios. We were in compliance with all collateral requirements as of March 31, 2024. See Note 6. Collateralized Arrangements and Financing of the Notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, for additional details relating to crypto assets borrowed and borrowings.

Crypto assets held as collateral

Crypto assets held as collateral represent institutional customers’ crypto assets pledged as collateral on Prime Financing loans, to which we have contractual rights to sell, pledge, or rehypothecate. As Prime Financing grows, we will continue to evaluate how to best utilize these resources to help fund the growth of this business.

Customer assets

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 March 31, 2024, 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

There have been no material changes in our cash requirements and contractual obligations since those presented in our Annual Report on Form 10-K for the year ended December 31, 2023, other than the issuance of additional long-term debt noted above*.* See Notes 11. Accrued Expenses and Other Current Liabilities, 12. Long-Term Debt, 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 additional details relating to our short and long term material cash requirements and contractual obligations as of March 31, 2024.

Cash flows

The following table summarizes our Condensed Consolidated Statements of Cash Flows (in thousands):

Three Months Ended March 31,
20242023
Net cash provided by operating activities$411,485$463,078
Net cash used in investing activities(125,681)(26,080)
Net cash provided by financing activities1,927,721460,129
Net increase in cash, cash equivalents, and restricted cash$2,213,525$897,127
Effect of exchange rates on cash, cash equivalents, and restricted cash$(21,186)$11,377
Change in customer custodial cash$609,802$314,277

Operating activities

Our largest source of cash provided by operations are revenues generated from transaction fees. Our primary uses of cash from operating activities include payments to employees for compensation, payments for website hosting and infrastructure services, professional services, and outsourced customer and support costs.

Net cash provided by operating activities decreased by $51.6 million for the three months ended March 31, 2024 as compared to 2023 primarily due to:

  • a $796.8 million increase in cash used to purchase USDC to facilitate growth in Prime Financing and to use as a liquidity resource in the normal course of operations; and

  • a $114.9 million increase in cash used for annual employee performance compensation given our strong financial performance during the prior year; offset in part by

  • an increase in cash collected from customers as a result of the $865.0 million increase in total revenue.

Investing activities

Net cash used in investing activities increased by $99.6 million for the three months ended March 31, 2024 as compared to 2023 primarily due to:

  • a $128.0 million increase in cash used towards the origination of fiat loans, net of repayments due to growth in Prime Financing; offset in part by

  • a $43.3 million decrease in cash used as a result of the prior year period cash payment for the settlement of crypto asset futures, which did not recur in the current period as we have not engaged in any corporate investment hedging strategies.

Financing activities

Net cash provided by financing activities increased by $1.5 billion for the three months ended March 31, 2024 as compared to 2023 primarily due to:

  • a $1.1 billion increase in cash due to proceeds from the issuance of the convertible senior notes due 2030, net of cash paid for associated capped calls; and

  • a $206.7 million net increase of fiat collateral pledged by institutional customers related to Prime Financing loans that we have the right to sell, pledge or rehypothecate.

Critical Accounting 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 estimates as compared to the critical accounting estimates disclosed in our Annual Report on Form 10-K which was filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2024.

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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