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. For all narrative provided in this Item 2, two numbers presented consecutively represent figures for the three and six months ended June 30, 2024 as compared to the corresponding periods in 2023, respectively, unless otherwise noted.

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 second quarter of 2024 reflects our focused execution on product expansion, ongoing operational discipline, and regulatory clarity efforts. For the three and six months ended June 30, 2024 we generated $1.4 billion and $3.0 billion of Net revenue and $36.2 million 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 second quarter of 2024 was a quarter of strong progress for us and the crypto industry, 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 June 30,% ChangeSix Months Ended June 30,% Change
2024202320242023
MTUs (in millions)8.27.3128.17.93
Trading Volume (in billions)$226$92146$538$237127
Net income (loss) (in millions)$36$(97)137$1,212$(176)789
Adjusted EBITDA(1) (in millions)$596$189215$1,610$475239

(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 increased for the three and six months ended June 30, 2024 as compared to 2023, primarily due to a 1.0 million and 0.9 million increase in trading users, influenced by overall crypto market sentiment and activity and higher average crypto asset prices, partially offset by a decrease in staking users as a result of updates we made to our staking service.

Trading Volume

We define Trading Volume as the total United States (“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 overall market dynamics, namely the price of crypto assets, crypto asset volatility, macroeconomic conditions, and by 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.

Three Months Ended June 30,% ChangeSix Months Ended June 30,% Change
2024202320242023
Trading Volume (in billions):
Consumer$37$14164$93$35166
Institutional18978142445202120
Total$226$92146$538$237127
Trading Volume by crypto asset:
Bitcoin35%40%(13)34%35%(3)
Ethereum1523(35)1423(39)
USDT(1)10nmnm11nmnm
Other crypto assets(2)403854142(2)
Total(3)100%100%100%100%
Transaction revenue by crypto asset:
Bitcoin31%39%(21)31%38%(18)
Ethereum1721(19)1519(21)
Solana10nmnm9nmnm
Other crypto assets(2)4239845435
Total100%100%100%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 and six months ended June 30, 2024 as compared to 2023, Trading Volume increased 146% and 127% reflecting an increase in both the total market and our market share in the U.S., where our business is concentrated:

  • Total market — an increase in Crypto Asset Volatility1 of 40% and 23% and an increase in total crypto market capitalization of 109% and 96%. 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

  • Market share — our Trading Volume growth outpaced the 83% and 80% growth in overall U.S. spot market trading volume, 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 U.S., 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 sequencer fees from Base users and fees charged for payment-related transactions. Transaction revenue is recognized at the time the transaction is processed.

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 directly correlated with Trading Volume, which is driven by both the number of spot trade transactions processed on our platform and the crypto asset price at the time of execution. 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, Losses (gains) on crypto assets held for operations, net*,* Crypto asset impairment, net, Restructuring, and Other operating expense (income), 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 software 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, policy spend, and software subscriptions for support services.

Losses (gains) on crypto assets held for operations, net

Losses (gains) on crypto assets held for operations, net, reflect changes in the fair value of crypto assets received as a form of payment and nearly immediately converted to cash or used timely to fulfill corporate expenses. In addition to crypto asset price changes, these gains and losses are influenced by the volume and mix of crypto assets received and used, and the timing of the turnover of these crypto assets.

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. Beginning in January 2024, we adopted ASU 2023-08, and no longer record Crypto asset impairment, net.

Restructuring

Restructuring expenses comprise separation pay, stock-based compensation, and other personnel costs related to reductions in our headcount.

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. The value of derivatives fluctuates with market conditions.

Interest expense

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

Losses (gains) on crypto assets held for investment, net

Losses (gains) on crypto assets held for investment, net generally comprise fair value remeasurement gains and losses from our crypto assets held for investment.

Other expense (income), net

Other expense (income), 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;

  • gains and losses on the fair value remeasurement of loan receivables originated from our crypto assets held for investment portfolio; and

  • fair value remeasurement gains and losses 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.

(Benefit from) provision for income taxes

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

Results of Operations

The following table summarizes the historical Condensed Consolidated Statements of Operations data (in thousands) and each component as a percentage of total revenue:

Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
$%****(1)$%****(1)$%****(1)$%****(1)
Revenue:
Net revenue$1,379,94295$662,50094$2,967,61996$1,398,89894
Other revenue69,686545,4116119,579481,5426
Total revenue1,449,628100707,9111003,087,1981001,480,440100
Operating expenses:
Transaction expense191,47713108,20015408,88413204,56914
Technology and development364,25825320,66745722,12123678,69846
Sales and marketing165,2621183,85312263,8479147,82910
General and administrative320,11522258,98837607,35120507,74934
Losses (gains) on crypto assets held for operations, net31,0162——(55,342)(2)——
Crypto asset impairment, net——(8,053)(1)——9,9091
Restructuring——(1,035)———143,45410
Other operating expense (income), net34,383218,866336,7591(14,318)(1)
Total operating expenses1,106,51176781,4861101,983,620641,677,890113
Operating income (loss)343,11724(73,575)(10)1,103,57836(197,450)(13)
Interest expense20,507121,672339,578143,2083
Losses (gains) on crypto assets held for investment, net319,02022——(331,409)(11)——
Other expense (income), net63,8274(16,564)(2)18,22213,701—
(Loss) income before income taxes(60,237)(4)(78,683)(11)1,377,18745(244,359)(17)
(Benefit from) provision for income taxes(96,387)(7)18,7223164,7925(68,058)(5)
Net income (loss)$36,1502$(97,405)(14)$1,212,39539$(176,301)(12)

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

Comparison of the three and six months ended June 30, 2024 and 2023

Revenue

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Transaction revenue$780,902$327,098$453,804139$1,857,643$701,811$1,155,832165
Subscription and services revenue599,040335,402263,638791,109,976697,087412,88959
Other revenue69,68645,41124,27553119,57981,54238,03747
Total revenue$1,449,628$707,911$741,717105$3,087,198$1,480,440$1,606,758109

For the three and six months ended June 30, 2024 we generated 85% and 84%, respectively, of total revenue in the U.S. For the three and six months ended June 30, 2023 we generated 90% and 89%, respectively, of total revenue in the U.S. No other country accounted for more than 10% of total revenue during the periods presented. International revenue comprised mainly transaction revenue in all periods presented.

Transaction revenue

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Consumer, net(1)$664,772$288,971$375,801130$1,599,984$618,123$981,861159
Institutional, net63,62417,06146,563273149,01639,372109,644278
Other transaction revenue(1)52,50621,06631,440149108,64344,31664,327145
Total transaction revenue$780,902$327,098$453,804139$1,857,643$701,811$1,155,832165

(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 and six months ended June 30, 2024 as compared to 2023, due to:

  • an increase in consumer transaction revenue of $474.7 million and $1,023.3 million due to a 164% and 166% increase in consumer Trading Volume. This increase was offset in part by a decrease of $98.9 million and $41.5 million attributed to a lower average blended fee rate due to changes in the mix of Trading Volume between advanced and simple trading;

  • an increase in institutional transaction revenue of $22.3 million and $61.6 million as a result of a higher average blended fee rate, and an increase of $24.2 million and $48.0 million due to 142% and 120% higher institutional Trading Volume. The increase in average blended fee rate was primarily due to a significant reduction in discounts offered to certain market maker customers as compared to 2023; and

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

Subscription and services revenue

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Stablecoin revenue$240,436$151,394$89,04259$437,753$350,292$87,46125
Blockchain rewards185,13987,61397,526111336,068161,363174,705108
Interest and finance fee income(1)69,40051,93217,46834136,06395,24540,81843
Custodial fee revenue34,50516,99217,51310366,84634,03432,81296
Other subscription and services revenue(1)69,56027,47142,089153133,24656,15377,093137
Total subscription and services revenue$599,040$335,402$263,63879$1,109,976$697,087$412,88959

(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 and six months ended June 30, 2024 as compared to 2023, due to:

  • increases in stablecoin revenue of $27.1 million and $62.3 million due to higher average interest rates, which rose 57 and 74 basis points, and $45.8 million and $76.1 million primarily due to higher on-platform USDC balances. For the six months ended June 30, 2024 as compared to 2023, these increases were partially offset by a decrease of $45.9 million attributable to a decline in overall USDC market capitalization;

  • an increase of $106.0 million and $173.6 million in blockchain rewards due to higher average prices for Ethereum and Solana, and an increase due to higher native units staked, partially offset by lower reward rates;

  • an increase in interest and finance fee income primarily reflecting growth of $10.6 million and $21.2 million in finance fees driven by higher average daily Prime Financing loan receivable outstanding balances. In addition, we saw growth of $5.1 million and $16.1 million related to customer custodial cash, primarily due to higher average customer balances and higher average earned interest rates;

  • an increase in custodial fee revenue primarily due to the growth in average crypto assets under custody of $82.2 billion and $78.8 billion as a result of higher crypto asset prices, primarily for Bitcoin and Ethereum; and

  • an increase in other subscription and services revenue, primarily due to growth of $25.7 million and $37.5 million in Coinbase One revenue, as the number of paid subscribers grew driven by market conditions and improvements to our product offerings, as well as an increase in revenue from developer products driven largely by higher average crypto asset prices.

Other revenue

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Corporate interest and other income$69,686$45,411$24,27553$119,579$81,542$38,03747
Total other revenue$69,686$45,411$24,27553$119,579$81,542$38,03747

Other revenue increased for the three and six months ended June 30, 2024 as compared to 2023, primarily reflecting an increase of $7.3 million and $20.0 million due to higher average earned interest rates on corporate balances, which rose 50 and 84 basis points, as well as higher average corporate balances.

Operating expenses

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Transaction expense$191,477$108,200$83,27777$408,884$204,569$204,315100
Technology and development364,258320,66743,59114722,121678,69843,4236
Sales and marketing165,26283,85381,40997263,847147,829116,01878
General and administrative320,115258,98861,12724607,351507,74999,60220
Losses (gains) on crypto assets held for operations, net31,016—31,016100(55,342)—(55,342)100
Crypto asset impairment, net—(8,053)8,053(100)—9,909(9,909)(100)
Restructuring—(1,035)1,035(100)—143,454(143,454)(100)
Other operating expense (income), net34,38318,86615,5178236,759(14,318)51,077357
Total operating expenses$1,106,511$781,486$325,02542$1,983,620$1,677,890$305,73018

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 third quarter of 2024, we expect technology and development and general and administrative expenses to grow mainly due to the non-linear expense recognition of stock-based compensation. Additionally, we expect sales and marketing expenses to grow as compared to the second quarter of 2024 primarily as a result of higher variable digital marketing.

Transaction expense

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Blockchain rewards fees$114,400$60,221$54,17990$219,854$112,831$107,02395
Payment processing and account verification36,09018,96217,1289071,57243,37328,19965
Transaction reversal losses4,42814,002(9,574)(68)24,40225,760(1,358)(5)
Miner fees15,94813,5332,4151849,28819,69029,598150
Other20,6111,48219,129nm43,7682,91540,853nm
Total transaction expense$191,477$108,200$83,27777$408,884$204,569$204,315100

nm - not meaningful

Transaction expense increased for the three and six months ended June 30, 2024 as compared to 2023, due to:

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

  • an increase in payment processing and account verification fees reflecting Trading Volume growth of 146% and 127%, and more directly for account verification fees, an increase in the number of consumers trading on our platform of 13% for both comparative periods. These increases were offset in part by savings from reduced fees at higher volumes and our cost optimization efforts;

  • an increase in miner fees for the six months ended June 30, 2024, primarily due to a $20.7 million increase resulting from higher blockchain transmission volumes, as well as due to higher average prices for Ethereum and Bitcoin; and

  • an increase in other largely driven by higher transaction rebates earned by institutional customers as we work to create liquidity in our international exchange in the early stages of this offering.

There were no material changes to note within transaction reversal losses.

Technology and development

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Personnel-related$252,622$230,576$22,04610$519,203$473,589$45,61410
Website hosting and infrastructure56,62445,11611,50826106,497102,1214,3764
Amortization expense29,28930,145(856)(3)53,26163,753(10,492)(16)
Other25,72314,83010,8937343,16039,2353,92510
Total technology and development$364,258$320,667$43,59114$722,121$678,698$43,4236

Technology and development expenses increased for the three and six months ended June 30, 2024 as compared to 2023, due to:

  • an increase in personnel-related expenses primarily 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; and

  • an increase in website hosting and infrastructure expenses driven by increased activity on our platform.

There were no material changes to note within amortization expense or other.

Sales and marketing

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Personnel-related$38,358$38,723$(365)(1)$73,850$71,604$2,2463
Marketing programs56,96632,60924,3577582,66653,71528,95154
USDC rewards56,5634,55352,010nm83,1257,76075,365971
Other13,3757,9685,4076824,20614,7509,45664
Total sales and marketing$165,262$83,853$81,40997$263,847$147,829$116,01878

Sales and marketing expenses increased for the three and six months ended June 30, 2024 as compared to 2023, due to:

  • an increase in marketing program expenses due to higher digital advertising spend; and

  • an increase in USDC rewards payouts primarily driven by higher reward rates offered to customers in an effort to enhance customer retention and platform engagement.

There were no material changes to note within personnel-related or other.

General and administrative

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Personnel-related (excluding customer support)$132,647$123,268$9,3798$270,117$248,717$21,4009
Customer support46,64632,33914,3074486,01064,22421,78634
Professional services42,60738,7473,8601080,99873,0607,93811
Other98,21564,63433,58152170,226121,74848,47840
Total general and administrative$320,115$258,988$61,12724$607,351$507,749$99,60220

General and administrative expenses increased for the three and six months ended June 30, 2024 as compared to 2023, due to:

  • an increase in 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 typically increase in periods following higher Trading Volumes;

  • an increase in other, primarily reflecting:

▪an increase of $25.9 million in policy spend as we increased our crypto advocacy efforts;

▪an increase of $13.7 million and $17.5 million in taxes, licenses, and fees largely due to higher indirect taxes directly associated with the growth in revenue and the application of certain indirect tax rules;

▪an increase in legal costs of $20.6 million for the six months ended June 30, 2024 due to increased spend during the first quarter of 2024; offset in part by

▪lower lease costs, as we recognized a one-time lease termination fee of $25.0 million during the six months ended June 30, 2023 related to the closure of our San Francisco office space.

There were no material changes to note within professional services.

Losses (gains) on crypto assets held for operations, net

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Losses (gains) on crypto assets held for operations, net$31,016$—$31,016100$(55,342)$—$(55,342)100

Losses on crypto assets held for operations, net during the three months ended June 30, 2024 resulted from a net use of crypto assets for operations during a period of declining crypto asset prices. Gains on crypto assets held for operations, net during the six months ended June 30, 2024 resulted from net receipts of crypto assets for operations during a period of rising crypto asset prices.

Crypto asset impairment, net

During the three and six months ended June 30, 2023, crypto asset impairment, net reflected an $8.1 million gain and a $9.9 million expense, driven by gross crypto asset impairments resulting from challenging crypto market conditions at the time, followed by expense recoveries as we sold previously impaired assets at recovered prices. Beginning January 2024, we adopted ASU 2023-08, and as a result no longer record crypto asset impairments.

Restructuring

Restructuring expense was $143.5 million for the six months ended June 30, 2023, driven by separation pay, stock-based compensation expense, and other personnel costs related to the workforce reduction in January 2023. Restructuring expense was immaterial for the three months ended June 30, 2023, and there were no restructuring expenses for the three and six months ended June 30, 2024.

Other operating expense (income), net

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Platform-related incidents$32,403$3,588$28,815803$32,598$5,980$26,618445
Losses (gains) on derivatives, net2,63811,537(8,899)(77)4,217(25,559)29,776116
Other(658)3,741(4,399)(118)(56)5,261(5,317)(101)
Total other operating expense (income), net$34,383$18,866$15,51782$36,759$(14,318)$51,077357

Changes in other operating expense (income), net for the three and six months ended June 30, 2024 as compared to 2023, were due to:

  • an increase in costs due to platform-related incidents; and

  • changes in gains and losses on derivatives for the six months ended June 30, 2023, primarily due to realized losses on the settlement of crypto asset futures offset by gains on other crypto asset derivatives. See Note 12. 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 other.

Interest expense

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Interest expense$20,507$21,672$(1,165)(5)$39,578$43,208$(3,630)(8)

There were no material changes to note within interest expense for the three and six months ended June 30, 2024 as compared to 2023.

Losses (gains) on crypto assets held for investment, net

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Losses (gains) on crypto assets held for investment, net$319,020$—$319,020100$(331,409)$—$(331,409)100

Losses (gains) on crypto assets held for investment, net during the three and six months ended June 30, 2024 were primarily due to the remeasurement of the fair value of crypto assets held, mainly Bitcoin and Ethereum, during periods of decreasing and increasing crypto asset prices, respectively.

Other expense (income), net

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
Strategic investment losses, net$13,814$3,839$9,975260$14,663$10,158$4,50544
Losses on other financial instruments, net24,584—24,58410011,398—11,398100
Losses on crypto asset loan receivables34,010—34,0101008,484—8,484100
Foreign exchange (gains) losses, net(321)(3,344)3,023(90)1,33010,534(9,204)(87)
Other(8,260)(17,059)8,799(52)(17,653)(16,991)(662)4
Total other expense (income), net$63,827$(16,564)$80,391(485)$18,222$3,701$14,521392

Other expense (income), net changed for the three and six months ended June 30, 2024 as compared to 2023, due to:

  • an increase in impairment expense recognized on certain strategic equity investments;

  • losses on the fair value remeasurement of certain other crypto asset-denominated financial instruments;

  • losses on the fair value remeasurement of loan receivables originated from our crypto assets held for investment portfolio; and

  • a decrease in net foreign exchange gains and losses due to improvements in foreign exchange risk management.

There were no material changes to note within other.

(Benefit from) provision for income taxes

Three Months Ended June 30,ChangeSix Months Ended June 30,Change
20242023$%20242023$%
(in thousands)(in thousands)
(Benefit from) provision for income taxes$(96,387)$18,722$(115,109)(615)$164,792$(68,058)$232,850342

For the three months ended June 30, 2024 as compared to 2023, the change in (benefit from) provision for income taxes was primarily due to tax benefits from stock-based compensation. For the six months ended June 30, 2024, as compared to 2023, the increase in provision for income taxes was primarily due to higher pretax income, partially offset by 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:

  • (benefit from) provision for 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;

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

  • 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; 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 expense (income), net in total, as the entire line item represents non-operating activity, and as a majority of the activity recorded in other expense (income), 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 our 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 (in thousands):

Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
Net income (loss)$36,150$(97,405)$1,212,395$(176,301)
Adjusted to exclude the following:
(Benefit from) provision for income taxes(96,387)18,722164,792(68,058)
Interest expense20,50721,67239,57843,208
Depreciation and amortization34,50136,98263,82878,190
Stock-based compensation217,934199,772442,438398,632
Losses (gains) on crypto assets held for investment, net (post-adoption of ASU 2023-08)319,020—(331,409)—
Other expense (income), net63,827(16,564)18,2223,701
Non-recurring lease charges—18,088—31,954
Impairment on crypto assets still held, net (pre-adoption of ASU 2023-08)—8,499—20,584
Restructuring—(1,035)—143,454
Adjusted EBITDA$595,552$188,731$1,609,844$475,364
Revised definition no longer adjusts for:
Crypto asset borrowing costs$1,218$2,738
Other impairment expense2,5868,113
Revised definition newly adjusts for:
Additional other expense (income), net(1)1,417(8,611)
Adjusted EBITDA, previous definition$193,952$477,604

(1)Represents the portion of Other expense (income), 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.

Primary resources and commitments

Cash and cash equivalents, restricted cash and cash equivalents, and USDC

As of June 30, 2024 and December 31, 2023, our cash and cash equivalents, restricted cash and cash equivalents, and USDC balances consisted of the following (in thousands):

June 30,December 31,
20242023
Cash and cash equivalents
Cash equivalents(1)$4,068,451$3,682,917
Cash held at banks3,059,9481,367,643
Cash held at venues97,13688,791
Total cash and cash equivalents$7,225,535$5,139,351
Restricted cash and cash equivalents(2)$34,282$22,992
USDC**(3)**
USDC loaned(4)$271,945$205,645
USDC pledged as collateral(4)195,37229,577
USDC not loaned or pledged589,331340,806
Total USDC$1,056,648$576,028

(1)Cash equivalents consists of money market funds and government bonds.

(2)Restricted cash and cash equivalents consists of money market funds and amounts held at banks and venues.

(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 in 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 in 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 June 30, 2024, we held $4.3 billion in aggregate principal amount of debt. See Note 11. Long-Term Debt for additional details, including maturities.

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.

Other resources and commitments

Crypto assets

We hold crypto assets for investment, operating, and 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 payments 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 pledged as collateral. If crypto asset prices rise, we will post additional collateral to maintain required collateral loan ratios. We were in compliance with all collateral requirements as of June 30, 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 and liabilities

Customer assets comprise customer custodial funds and safeguarding customer crypto assets, and the associated liabilities represent our obligation to safeguard and return these assets to the customers. See Note 9. Customer Assets and Liabilities for additional details. 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 June 30, 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 10. Other Condensed Consolidated Balance Sheets Details, 11. Long-Term Debt, 16. Income Taxes and 18. 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 June 30, 2024.

Cash flows

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

Six Months Ended June 30,
20242023
Net cash provided by operating activities$895,682$614,202
Net cash used in investing activities(144,292)(12,754)
Net cash provided by (used in) financing activities993,988(1,142,263)
Net increase (decrease) in cash, cash equivalents, and restricted cash and cash equivalents$1,745,378$(540,815)
Effect of exchange rates on cash, cash equivalents, and restricted cash and cash equivalents$(25,923)$(4,370)
Change in customer custodial cash$(378,019)$(1,281,721)

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 increased by $281.5 million for the six months ended June 30, 2024 as compared to 2023 primarily due to:

  • an increase in cash collected from customers as a result of the $1.6 billion increase in total revenue; offset in part by

  • a $1.0 billion increase in cash used to purchase USDC in order to facilitate growth in Prime Financing as well as to provide liquidity for normal business operations;

  • a $114.8 million increase in cash used for annual employee performance compensation given our strong financial performance during the prior year;

  • a $70.9 million increase in cash used to pay income taxes; and

  • an overall increase in other cash expenses as we continue to grow our business.

Investing activities

Net cash used in investing activities increased by $131.5 million for the six months ended June 30, 2024 as compared to 2023 primarily due to an increase in cash used for the origination of fiat loans, net of repayments, reflecting growth in Prime Financing.

Financing activities

Net cash provided by financing activities increased by $2.1 billion for the six months ended June 30, 2024 as compared to 2023 primarily due to:

  • a $1.1 billion increase in cash due to proceeds from the issuance of our 2030 Convertible Notes, net of cash paid for associated capped calls;

  • a $630.3 million increase in customer custodial cash attributable to increased Trading Volume; and

  • a $248.6 million net increase of recognized fiat collateral pledged by institutional customers related to Prime Financing loans.

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 our 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 our 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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