Coinbase Global, Inc. 10-K

Item 8. Financial Statements and Supplementary Data Index to Consolidated Financial Statements Page Report s of Independent Registered Public Accounting Firm (Deloitte - PCAOB ID 34 ) 124 Consolidated Balance Sheets 127 Consolidated Statements of Operations 128 Consolidated Statements of Comprehensive ( Loss) Income 129 Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity 130 Consolidated Statements of Cash Flows 131 Notes to Consolidated Financial Statements 133 123 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Coinbase Global, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Coinbase Global, Inc. (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of Operations, Comprehensive Income, Changes in Convertible Preferred Stock and Stockholders’ Equity, and Cash Flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 21, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates. 124 Table of Contents Customer Crypto Assets, Crypto Assets Held and USDC - Crypto Assets in Cold Storage — Refer to Notes 2, 9, and 10 to the financial statements Critical Audit Matter Description Crypto assets are generally accessible only by the possessor of the unique private key relating to the digital wallet in which the crypto assets are held. Accordingly, private keys must be safeguarded and secured in order to prevent an unauthorized party from accessing the crypto assets within a digital wallet. The Company primarily holds crypto assets for its own use, and on behalf of customers, in wallets within its cold storage environment. The loss, theft, or otherwise compromise of access to the private keys required to access the crypto assets in cold storage could adversely affect the Company’s ability to access the crypto assets within its environment. This could result in loss of corporate crypto assets held or loss of crypto assets safeguarded on behalf of customers. We identified crypto assets in cold storage as a critical audit matter due to the nature and extent of audit effort required to obtain sufficient appropriate audit evidence to address the risks of material misstatement related to the existence and rights & obligations of crypto assets in cold storage. The nature and extent of audit effort required to address the matter includes significant involvement of more experienced engagement team members and discussions and consultations with subject matter experts related to the matter. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to crypto assets in cold storage included the following, among others: • We consulted with subject matter experts regarding our planned audit response to address risks of material misstatement of crypto assets in cold storage. • We tested the effectiveness of controls within the Company’s private key management process including controls related to physical access, key generation, and segregation of duties across the processes. • We tested the effectiveness of management’s reconciliation control of internal books and records to external blockchains. • We tested the effectiveness of management’s control to segregate corporate crypto asset balances from customer crypto asset balances. • We tested the effectiveness of controls within the processes of customer crypto asset deposits and customer crypto asset withdrawals. • We obtained evidence to evaluate crypto asset balances for appropriate segregation between corporate crypto assets and customer crypto assets. • We utilized our proprietary audit tool to independently obtain evidence from public blockchains to test the existence of crypto asset balances. • We obtained evidence that management has control of the private keys required to access crypto assets in cold storage through a combination of decoding cryptographic messages signed using selected private keys or through observing the movement of selected crypto assets. • We evaluated the reliability of audit evidence obtained from public blockchains. /s/ Deloitte & Touche LLP San Francisco, California February 21, 2023 We have served as the Company's auditor since 2020. 125 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the shareholders and the Board of Directors of Coinbase Global, Inc. Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of Coinbase Global, Inc. (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022 of the Company and our report dated February 21, 2023, expressed an unqualified opinion. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Deloitte & Touche LLP San Francisco, California February 21, 2023 126 Table of Contents Coinbase Global, Inc. Consolidated Balance Sheets (In thousands, except par value data) December 31, 2022 2021 Assets Current assets: Cash and cash equivalents $ 4,425,021 $ 7,123,478 Restricted cash 25,873 30,951 Customer custodial funds 5,041,119 10,617,552 Customer crypto assets (1) 75,413,188 — USDC 861,149 100,096 Accounts and loans receivable, net of allowance 404,376 304,706 Income tax receivable 60,441 61,231 Prepaid expenses and other current assets 217,048 135,849 Total current assets 86,448,215 18,373,863 Crypto assets held 424,393 988,193 Lease right-of-use assets 69,357 98,385 Property and equipment, net 171,853 59,230 Goodwill 1,073,906 625,758 Intangible assets, net 135,429 176,689 Other non-current assets 1,401,720 952,307 Total assets $ 89,724,873 $ 21,274,425 Liabilities, Convertible Preferred Stock and Stockholders’ Equity Current liabilities: Customer custodial cash liabilities $ 4,829,587 $ 10,480,612 Customer crypto liabilities (2) 75,413,188 — Accounts payable 56,043 39,833 Accrued expenses and other current liabilities 331,236 439,559 Crypto asset borrowings 151,505 426,665 Lease liabilities, current 33,734 32,366 Total current liabilities 80,815,293 11,419,035 Lease liabilities, non-current 42,044 74,078 Long-term debt 3,393,448 3,384,795 Other non-current liabilities 19,531 14,828 Total liabilities 84,270,316 14,892,736 Commitments and contingencies (Note 21) Stockholders’ equity: Class A common stock, $ 0.00001 par value; 10,000,000 shares authorized at December 31, 2022 and 2021; 182,796 and 168,807 shares issued and outstanding at December 31, 2022 and 2021, respectively 2 2 Class B common stock, $ 0.00001 par value; 500,000 shares authorized at December 31, 2022 and 2021; 48,070 and 48,310 shares issued and outstanding at December 31, 2022 and 2021, respectively — — Additional paid-in capital 3,767,686 2,034,658 Accumulated other comprehensive loss ( 38,606 ) ( 3,395 ) Retained earnings 1,725,475 4,350,424 Total stockholders’ equity 5,454,557 6,381,689 Total liabilities, convertible preferred stock, and stockholders’ equity $ 89,724,873 $ 21,274,425 __________________ (1) Safeguarding assets (2) Safeguarding liabilities The accompanying notes are an integral part of these consolidated financial statements. 127 Table of Contents Coinbase Global, Inc. Consolidated Statements of Operations (In thousands, except per share data) Year Ended December 31, 2022 2021 2020 Revenue: Net revenue $ 3,148,815 $ 7,354,753 $ 1,141,167 Other revenue 45,393 484,691 136,314 Total revenue 3,194,208 7,839,444 1,277,481 Operating expenses: Transaction expense 629,880 1,267,924 135,514 Technology and development 2,326,354 1,291,561 271,732 Sales and marketing 510,089 663,689 56,782 General and administrative 1,600,586 909,392 279,880 Restructuring 40,703 — — Other operating expense, net 796,804 630,308 124,622 Total operating expenses 5,904,416 4,762,874 868,530 Operating (loss) income ( 2,710,208 ) 3,076,570 408,951 Interest expense 88,901 29,160 — Other expense (income), net 265,473 20,463 ( 248 ) (Loss) income before income taxes ( 3,064,582 ) 3,026,947 409,199 (Benefit from) provision for income taxes ( 439,633 ) ( 597,173 ) 86,882 Net (loss) income $ ( 2,624,949 ) $ 3,624,120 $ 322,317 Net (loss) income attributable to common stockholders: Basic $ ( 2,624,949 ) $ 3,096,958 $ 108,256 Diluted $ ( 2,631,179 ) $ 3,190,404 $ 127,471 Net (loss) income per share attributable to common stockholders: Basic $ ( 11.81 ) $ 17.47 $ 1.58 Diluted $ ( 11.83 ) $ 14.50 $ 1.40 Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders: Basic 222,314 177,319 68,671 Diluted 222,338 219,965 91,209 The accompanying notes are an integral part of these consolidated financial statements. 128 Table of Contents Coinbase Global, Inc. Consolidated Statements of Comprehensive (Loss) Income (In thousands) Year Ended December 31, 2022 2021 2020 Net (loss) income $ ( 2,624,949 ) $ 3,624,120 $ 322,317 Other comprehensive (loss) income: Translation adjustment, net of tax ( 35,211 ) ( 9,651 ) 6,977 Comprehensive (loss) income $ ( 2,660,160 ) $ 3,614,469 $ 329,294 The accompanying notes are an integral part of these consolidated financial statements. 129 Table of Contents Coinbase Global, Inc. Consolidated Statements of Changes in Convertible Preferred Stock and Stockholders' Equity (In thousands) Convertible Preferred Stock Additional Paid-In Capital Accumulated Other Comprehensive (Loss) Income Retained Earnings Common Stock Shares Amount Shares Amount Total Balance at January 1, 2020 114,959 $ 564,697 66,994 $ — $ 93,820 $ ( 721 ) $ 403,987 $ 497,086 Issuance of common stock upon exercise of stock options, net of repurchases — — 2,038 — 16,707 — — 16,707 Repurchase of equity awards — — — — ( 1,930 ) — — ( 1,930 ) Stock-based compensation expense — — — — 72,643 — — 72,643 Issuance of equity instruments as consideration in business combination — — 1,304 — 31,349 — — 31,349 Issuance of common stock to settle contingent consideration — — 691 — 16,205 — — 16,205 Conversion of preferred stock ( 2,081 ) ( 2,230 ) 2,081 — 2,230 — — 2,230 Comprehensive income — — — — — 6,977 — 6,977 Net income — — — — — — 322,317 322,317 Balance at December 31, 2020 112,878 $ 562,467 73,108 $ — $ 231,024 $ 6,256 $ 726,304 $ 963,584 Issuance of common stock upon exercise of stock options, net of repurchases — — 24,909 — 212,476 — — 212,476 Stock-based compensation expense — — — — 824,153 — — 824,153 Issuance of equity instruments as consideration for business combinations — — 3,985 — 544,588 — — 544,588 Conversion of preferred stock ( 112,878 ) ( 562,467 ) 112,878 2 562,465 — — 562,467 Issuance of common stock from exercise of warrants — — 412 — 433 — — 433 Issuance of common stock upon settlement of Restricted Stock Units ("RSUs") and restricted common stock, net of shares withheld — — 1,775 — ( 262,794 ) — — ( 262,794 ) Purchase of capped calls — — — — ( 90,131 ) — — ( 90,131 ) Issuance of common stock under the 2021 Employee Stock Purchase Plan (the "ESPP") — — 50 — 12,444 — — 12,444 Comprehensive loss — — — — — ( 9,651 ) — ( 9,651 ) Net income — — — — — — 3,624,120 3,624,120 Balance at December 31, 2021 — $ — 217,117 $ 2 $ 2,034,658 $ ( 3,395 ) $ 4,350,424 $ 6,381,689 Issuance of common stock upon exercise of stock options, net of repurchases — — 3,883 — 56,737 — — 56,737 Stock-based compensation expense — — — — 1,683,840 — — 1,683,840 Issuance of equity instruments as consideration for business combinations — — 1,663 — 314,356 — — 314,356 Issuance of common stock to settle contingent consideration — — 58 — 4,661 — — 4,661 Issuance of common stock upon settlement of RSUs and restricted common stock, net of shares withheld — — 7,870 — ( 351,867 ) — — ( 351,867 ) Issuance of common stock under the ESPP — — 275 — 21,622 — — 21,622 Other — — — — 3,679 — — 3,679 Comprehensive loss — — — — — ( 35,211 ) — ( 35,211 ) Net income — — — — — — ( 2,624,949 ) ( 2,624,949 ) Balance at December 31, 2022 — $ — 230,866 $ 2 $ 3,767,686 $ ( 38,606 ) $ 1,725,475 $ 5,454,557 The accompanying notes are an integral part of these consolidated financial statements. 130 Table of Contents Coinbase Global, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from operating activities Net (loss) income $ ( 2,624,949 ) $ 3,624,120 $ 322,317 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: Depreciation and amortization 154,069 63,651 30,962 Crypto asset impairment expense 757,257 329,152 8,355 Investment impairment expense 101,445 — — Other impairment expense 26,518 500 — Stock-based compensation expense 1,565,823 820,685 70,548 Provision for transaction losses and doubtful accounts ( 13,051 ) 22,390 ( 2,966 ) (Gain) loss on disposal of property and equipment ( 58 ) 1,425 355 Deferred income taxes ( 468,035 ) ( 558,329 ) 474 Unrealized loss (gain) on foreign exchange 28,516 ( 14,944 ) 1,057 Non-cash lease expense 31,123 34,542 25,012 Change in fair value of contingent consideration ( 8,312 ) ( 924 ) 3,281 Realized gain on crypto assets ( 36,666 ) ( 178,234 ) ( 23,682 ) Crypto assets received as revenue ( 470,591 ) ( 1,015,920 ) ( 94,158 ) Crypto asset payments for expenses 383,221 815,783 40,205 Fair value loss (gain) on derivatives 7,410 ( 32,056 ) 5,254 Amortization of debt discount and issuance costs 9,253 5,031 — Loss (gain) on investments 3,056 ( 20,138 ) 150 Changes in operating assets and liabilities: USDC ( 848,138 ) ( 77,471 ) 37,936 Accounts and loans receivable ( 141,023 ) 28,511 ( 117,167 ) Deposits in transit 28,952 ( 36,527 ) ( 39,989 ) Income taxes, net 1,906 ( 62,145 ) 86,791 Other current and non-current assets 19,237 ( 20,060 ) ( 48,677 ) Accounts payable 18,612 27,330 6,090 Lease liabilities ( 10,223 ) ( 20,596 ) ( 24,998 ) Other current and non-current liabilities ( 100,771 ) 302,396 6,398 Net cash (used in) provided by operating activities ( 1,585,419 ) 4,038,172 293,548 Cash flows from investing activities Purchase of property and equipment ( 2,933 ) ( 2,910 ) ( 9,913 ) Proceeds from sale of property and equipment 83 31 — Capitalized internal-use software development costs ( 61,038 ) ( 22,073 ) ( 8,889 ) Business combinations, net of cash acquired ( 186,150 ) ( 70,911 ) 33,615 Purchase of investments ( 63,048 ) ( 326,513 ) ( 10,329 ) Purchase of assembled workforce — ( 60,800 ) — Proceeds from settlement of investments 1,551 5,159 303 Purchase of crypto assets held ( 1,400,032 ) ( 3,009,086 ) ( 528,080 ) Disposal of crypto assets held 969,185 2,574,032 574,115 Loans originated ( 207,349 ) ( 336,189 ) — Proceeds from repayment of loans 327,539 124,520 — Assets pledged as collateral ( 41,630 ) — — Net cash (used in) provided by investing activities ( 663,822 ) ( 1,124,740 ) 50,822 The accompanying notes are an integral part of these consolidated financial statements. 131 Table of Contents Coinbase Global, Inc. Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2022 2021 2020 Cash flows from financing activities Issuance of common stock upon exercise of stock options, net of repurchases 51,497 217,064 20,731 Taxes paid related to net share settlement of equity awards ( 351,867 ) ( 262,794 ) — Proceeds received under the ESPP 20,848 19,889 — Other financing activities 3,679 — — Customer custodial cash liabilities ( 5,562,558 ) 6,691,859 2,710,522 Cash paid to repurchase equity awards — — ( 1,930 ) Issuance of shares from exercise of warrants — 433 — Issuance of convertible senior notes, net — 1,403,753 — Issuance of senior notes, net — 1,976,011 — Purchase of capped calls — ( 90,131 ) — Proceeds from short-term borrowings 190,956 20,000 — Repayment of short-term borrowings ( 191,073 ) — — Net cash (used in) provided by financing activities ( 5,838,518 ) 9,976,084 2,729,323 Net (decrease) increase in cash, cash equivalents, and restricted cash ( 8,087,759 ) 12,889,516 3,073,693 Effect of exchange rates on cash, cash equivalents, and restricted cash ( 163,257 ) ( 64,883 ) ( 2,081 ) Cash, cash equivalents, and restricted cash, beginning of period 17,680,662 4,856,029 1,784,417 Cash, cash equivalents, and restricted cash, end of period $ 9,429,646 $ 17,680,662 $ 4,856,029 Cash, cash equivalents, and restricted cash consisted of the following: Cash and cash equivalents $ 4,425,021 $ 7,123,478 $ 1,061,850 Restricted cash 25,873 30,951 30,787 Customer custodial cash 4,978,752 10,526,233 3,763,392 Total cash, cash equivalents, and restricted cash $ 9,429,646 $ 17,680,662 $ 4,856,029 Supplemental disclosure of cash flow information Cash paid during the period for interest $ 82,399 $ 3,793 $ — Cash paid during the period for income taxes 35,888 68,614 62,060 Operating cash outflows for amounts included in the measurement of operating lease liabilities 14,528 20,061 40,011 Supplemental schedule of non-cash investing and financing activities Unsettled purchases of property and equipment $ — $ 808 $ — Right-of-use assets obtained in exchange for operating lease obligations 3,059 27,286 2,146 Non-cash consideration paid for business combinations 324,925 571,196 — Purchase of crypto assets and investments with non-cash consideration 19,967 13,511 662 Redemption of investments with non-cash consideration 5,000 — — Disposal of crypto assets for non-cash consideration 617 — — Crypto assets borrowed 920,379 1,134,876 194,696 Crypto assets borrowed repaid with crypto assets 1,432,688 609,600 59,171 Non-cash assets pledged as collateral 58,377 — — Non-cash assets received as collateral 26,874 — — The accompanying notes are an integral part of these consolidated financial statements. 132 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements 1. NATURE OF OPERATIONS Coinbase, Inc. was founded in 2012. In April 2014, in connection with a corporate reorganization, Coinbase, Inc. became a wholly-owned subsidiary of Coinbase Global, Inc. (together with its consolidated subsidiaries, the “Company”). The Company operates globally and is a leading provider of end-to-end financial infrastructure and technology for the cryptoeconomy. The Company offers consumers the primary financial account for the cryptoeconomy, institutions a state of the art marketplace with a deep pool of liquidity for transacting in crypto assets, and developers technology and services that enable them to build crypto-based applications and securely accept crypto assets as payment. The Company is a remote-first company. Accordingly, the Company does not maintain a headquarters. On April 14, 2021, the Company completed the direct listing of its Class A common stock on the Nasdaq Global Select Market (the “Direct Listing”). 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation and principles of consolidation The accompanying consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles (“GAAP”), and include the accounts of the Company and its subsidiaries. The Company’s subsidiaries are entities in which the Company holds, directly or indirectly, more than 50% of the voting rights, or where it exercises control. Certain subsidiaries of the Company have a basis of presentation different from GAAP. For the purposes of the consolidated financial statements, the basis of presentation of such subsidiaries is converted to GAAP. All intercompany accounts and transactions have been eliminated in consolidation. Reclassifications Certain prior period amounts have been reclassified in order to conform with the current period presentation. These reclassifications have no impact on the Company’s previously reported consolidated net income. Changes in presentation During the fourth quarter of 2022, the Company elected to change its presentation for deposits in transit from payment processors and financial institutions, which are related to customer transactions. Under the new presentation, these funds are included in customer custodial funds, whereas previously they were presented within the accounts and loans receivable, net of allowance financial statement line item. The change allows the Company to present cash and deposits in transit as customer custodial funds held for the exclusive benefit of customers, which the Company holds to meet its obligations for customer deposits at period end. Additionally, the Company made a change in its presentation of customer custodial cash liabilities from operating activities, to present them as financing activities within its consolidated statements of cash flows. Comparative amounts have been recast to conform to current period presentation. These recasts had no impact on the consolidated statements of operations, consolidated statements of comprehensive income or consolidated statements of changes in convertible preferred stock and stockholders' equity. 133 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The following tables present the effects of the changes in presentation within the consolidated balance sheets and statements of cash flows (in thousands): As of and for the Year Ended December 31, 2021 As Previously Reported Adjustment As Adjusted Consolidated Balance Sheets Customer custodial funds $ 10,526,233 $ 91,319 $ 10,617,552 Accounts and loans receivable, net of allowance 396,025 ( 91,319 ) 304,706 Consolidated Statements of Cash Flows Cash flows from operating activities Accounts and loans receivable $ ( 8,016 ) $ 36,527 $ 28,511 Deposits in transit — ( 36,527 ) ( 36,527 ) Customer custodial cash liabilities 6,691,859 ( 6,691,859 ) — Net cash provided by operating activities 10,730,031 ( 6,691,859 ) 4,038,172 Cash flows from financing activities Customer custodial cash liabilities $ — $ 6,691,859 $ 6,691,859 Net cash provided by financing activities 3,284,225 6,691,859 9,976,084 For the Year Ended December 31, 2020 As Previously Reported Adjustment As Adjusted Consolidated Statements of Cash Flows Cash flows from operating activities Accounts and loans receivable $ ( 157,156 ) $ 39,989 $ ( 117,167 ) Deposits in transit — ( 39,989 ) ( 39,989 ) Customer custodial cash liabilities 2,710,522 ( 2,710,522 ) — Net cash provided by operating activities 3,004,070 ( 2,710,522 ) 293,548 Cash flows from financing activities Customer custodial cash liabilities $ — $ 2,710,522 $ 2,710,522 Net cash provided by financing activities 18,801 2,710,522 2,729,323 Use of estimates The preparation of th e consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions in the Company’s consolidated financial statements and notes thereto. Significant estimates and assumptions include the determination of the recognition, measurement, and valuation of current and deferred income taxes; the fair value of stock-based awards issued; the useful lives of long-lived assets; the impairment of long-lived assets; the valuation of privately-held strategic investments, including impairments; the Company’s incremental borrowing rate; the fair value of customer crypto assets and liabilities; the fair value of assets acquired and liabilities assumed in business combinations, including contingent consideration arrangements; the fair value of derivatives and related hedges; the fair value of long-term debt; assessing the likelihood of adverse outcomes from claims and disputes; and loss provisions. 134 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Actual results and outcomes may differ from management’s estimates and assumptions due to risks and uncertainties. To the extent that there are material differences between these estimates and actual results, the Comp any’s consolidated financial statements will be affected. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable, the result of which forms the basis for making judgments about the carrying values of assets and liabilities. Foreign currency transactions The Company’s functional currency is the U.S. dollar. The Company has exposure to foreign currency translation gains and losses arising from the Company’s net investment in foreign subsidiaries. The revenues, expenses, and financial results of these foreign subsidiaries are recorded in their respective functional currencies. The financial statements of these subsidiaries are translated into U.S. dollars using a current rate of exchange, with gains or losses, net of tax as applicable, included in accumulated other comprehensive income (loss) (“AOCI”) within the consolidated statements of changes in convertible preferred stock and stockholders’ equity. Cumulative translation adjustments are released from AOCI and recorded in the consolidated statements of operations when the Company disposes or loses control of a consolidated subsidiary. Gains and losses resulting from remeasurement are recorded in other expense (income), net within the consolidated statements of operations. Business combinations The results of businesses acquired in a business combination are included in the Company’s consolidated financial statements from the date of the acquisition. Purchase accounting results in assets and liabilities of an acquired business being recorded at their estimated fair values on the acquisition date. Any excess consideration over the fair value of assets acquired and liabilities assumed is recognized as goodwill. Acquisition-related costs incurred by the Company are recognized as an expense in general and administrative expenses within the consolidated statements of operations. The Company uses its best estimates and assumptions to assign fair value to the tangible and intangible assets acquired and liabilities assumed at the acquisition date. The Company’s estimates are inherently uncertain and subject to refinement. During the measurement period, which may be up to one year from the acquisition date, and to the extent that the value was not previously finalized, the Company may record adjustments to the fair value of these tangible and intangible assets acquired and liabilities assumed, with the corresponding offset to goodwill. In addition, uncertain tax positions and tax-related valuation allowances are initially recorded in connection with a business combination as of the acquisition date. The Company continues to collect information about facts and circumstance that existed at the date of acquisition and reevaluates these estimates and assumptions quarterly and records any adjustments to the Company’s preliminary estimates to goodwill, provided that the Company is within the measurement period. Upon the conclusion of the measurement period or final determination of the fair value of assets acquired or liabilities assumed, whichever comes first, any subsequent adjustments are recorded to the Company ’s consolidated statements of operations. Fair value measurements The Company measures certain assets and liabilities at fair value. The Company defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is estimated by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: • Level 1 : Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. 135 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements • Level 2 : Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. • Level 3 : Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that market participants would use in pricing the asset or liability. Cash and cash equivalents Cash and cash equivalents include cash and interest-bearing highly liquid investments held at financial institutions, cash on hand that is not restricted as to withdrawal or use with an initial maturity of three months or less, and cash held in accounts at crypto trading venues. Crypto asset and fiat wallet service trading venues include other crypto asset trading platforms that hold money transmitter licenses, and where the Company holds funds in its accounts with those trading platforms. Cash and cash equivalents excludes customer legal tender, which is reported separately as customer custodial funds on the accompanying consolidated balance sheets. Refer to Customer custodial funds and customer custodial cash liabilities below for further details. Restricted cash The Company has restricted cash deposits at financial institutions related to operational restricted deposits and a standby letter of credit. Customer custodial funds and customer custodial cash liabilities Customer custodial funds represents restricted cash and cash equivalents maintained in segregated Company bank accounts that are held for the exclusive benefit of customers and deposits in transit from payment processors and financial institutions. Customer custodial cash liabilities represents the obligation to return cash deposits held by customers in their fiat wallets and unsettled fiat deposits and withdrawals. Deposits in transit represent settlements from third-party payment processors and banks for customer transactions. Deposits in transit are received within five business days of the transaction date. The Company establishes withdrawal-based limits in order to mitigate potential losses by preventing customers from withdrawing the crypto asset to an external blockchain address until the deposit settles. In certain jurisdictions, deposits in transit qualify as eligible liquid assets to meet regulatory requirements to fulfill the Company’s direct obligations under customer custodial cash liabilities. The Company restricts the use of the assets underlying the customer custodial funds to meet regulatory requirements and classifies the assets as current based on their purpose and availability to fulfill the Company’s direct obligation under customer custodial cash liabilities. Certain jurisdictions where the Company operates require the Company to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100% of the aggregate amount of all customer custodial cash liabilities. Depending on the jurisdiction, eligible liquid assets can include cash and cash equivalents, customer custodial funds, and certain other customer receivables. As of December 31, 2022 and 2021, the Company’s eligible liquid assets were greater than the aggregate amount of customer custodial cash liabilities. USDC USD Coin (“USDC”) is accounted for as a financial instrument; one USDC can be redeemed for one U.S. dollar on demand from the issuer. 136 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Accounts and loans receivable and allowance for doubtful accounts Accounts and loans receivables are contractual rights to receive cash or crypto assets either on demand or on fixed or determinable dates, and are recognized as an asset on the consolidated balance sheets. Accounts and loans receivable consists of trade finance receivables, custodial fee revenue receivable, loans receivable, crypto asset loan receivables, interest receivable, and other receivables. Trade finance receivables represent funds due for crypto assets delivered to credit eligible customers and are typically received within three business days from the transaction date. Trade finance receivables enable customers to instantly invest in crypto assets without pre-funding their trade. Custodial fee revenue receivable represents the fee earned and receivable by the Company for providing a dedicated secure cold storage solution to customers. The fee is based on a contractual percentage of the daily value of assets under custody and is generally collected on a monthly basis. Such custodial fee revenue income is included in the net revenue in the consolidated statements of operations. Loans receivable represent cash loans made to consumers and institutions. These loans are collateralized with crypto assets held by those users in their crypto asset wallets on the Company’s platform. Loans receivable are subsequently measured at amortized cost. Crypto asset loan receivables represent crypto asset loans made to institutions. These loans are collateralized with fiat, USDC, or crypto assets held by those users in their crypto asset wallet on the Company’s platform. Crypto asset loan receivables are initially and subsequently measured at the fair value of the underlying crypto asset lent and adjusted for expected credit losses. The Company recognizes an allowance for doubtful accounts for receivables based on expected credit losses. In determining expected credit losses, the Company considers historical loss experience, the aging of its receivable balance, and the fair value of any collateral held. For loans receivable and crypto asset loan receivables, the Company applies the collateral maintenance provision practical expedient. The Company would recognize credit losses on these loans if there is a collateral shortfall and it is not reasonably expected that the borrower will replenish such a shortfall. Concentration of credit risk The Company’s cash and cash equivalents, restricted cash, customer custodial funds, and accounts and loans receivable are potentially subject to concentration of credit risk. Cash and cash equivalents, restricted cash, and customer custodial funds are primarily placed with financial institutions which are of high credit quality. The Company invests cash and cash equivalents, and customer custodial funds primarily in highly liquid, highly rated instruments which are uninsured. The Company may also have corporate deposit balances with financial institutions which exceed the Federal Deposit Insurance Corporation insurance limit of $250,000. The Company has not experienced losses on these accounts and does not believe it is exposed to any significant credit risk with respect to these accounts. The Company also holds cash at crypto trading venues and performs a regular assessment of these crypto trading venues as part of its risk management process. The Company held $ 861.1 million and $ 100.1 million of USDC as of December 31, 2022 and 2021, respectively. The issuer of USDC reported that, as of December 31, 2022, underlying reserves were held in cash and short-duration U.S. Treasuries within segregated accounts for the benefit of USDC holders. As of December 31, 2022 and 2021, the Company had one counterparty and no counterparties, respectively, who accounted for more than 10 % of the Company’s accounts and loans receivable, net. In January and February 2023, the Company received payments from this counterparty which accounted for their total receivable balance. During the years ended December 31, 2022 and 2021, no counterparty accounted for more than 10% of total revenue. 137 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Crypto assets held The crypto assets held by the Company, with no qualifying fair value hedge, are accounted for as intangible assets with indefinite useful lives, and are initially measured at cost. Crypto assets accounted for as intangible assets are subject to impairment losses if the fair value of crypto assets decreases below the carrying value at any time during the period. The fair value is measured using the quoted price of the crypto asset at the time its fair value is being measured in the Company’s principal market. Impairment expense is reflected in other operating expense, net in the consolidated statements of operations. The Company assigns costs to transactions on a first-in, first-out basis. Crypto assets held as the hedged item in qualifying fair value hedges are initially measured at cost. Subsequent changes in fair value attributable to the hedged risk are adjusted to the carrying amount of these crypto assets, with changes in fair value recorded in other operating expense, net in the consolidated statements of operations. The Company recognizes crypto assets received through airdrops or forks if the crypto asset is expected to generate probable future benefit and if the Company is able to support the trading, custody, or withdrawal of these assets. The Company records the crypto assets received through airdrops or forks at their cost. Leases The Company determines if an arrangement is a lease at inception. Operating leases are included in lease right-of-use (“ROU”) assets and lease liabilities on the consolidated balance sheets. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of future minimum lease payments over the lease term. Most leases do not provide an implicit rate, so the Company uses its incremental borrowing rate. The operating lease ROU assets also include any lease payments made before commencement and exclude lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that those options will be exercised. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company has made the policy election to account for short-term leases by recognizing the lease payments in profit or loss on a straight-line basis over the lease term and not recognizing these leases on the consolidated balance sheets. Variable lease payments are recognized in profit or loss in the period in which the obligation for those payments is incurred. The Company has real estate lease agreements with lease and non-lease components for which the Company has made the accounting policy election to account for these agreements as a single lease component. Property and equipment Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the lesser of the estimated useful life of the asset or the remaining lease term. The estimated useful lives of the Company’s property, equipment, and software are generally as follows: Property and Equipment Useful Life Furniture and fixtures Three to five years Computer equipment Two to five years Leasehold improvements Lesser of useful life or remaining lease term Capitalized software One to three years 138 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Construction-in-progress represents costs incurred on the construction of leasehold improvements that have not been completed or placed in service as of the end of the year, and accordingly, no depreciation expense has been recorded. Capitalized software consists of costs incurred during the application development stage of internal-use software or implementation of a hosting arrangement that is a service contract. Capitalized costs consist of salaries and compensation costs for employees, fees paid to third-party consultants who are directly involved in development efforts, and costs incurred for upgrades and enhancements to add functionality of the software. Other costs that do not meet the capitalization criteria are expensed as incurred. Long-lived assets, including ROU assets, goodwill, and acquired intangible assets The Company evaluates the recoverability of long-lived assets on an annual basis, or more frequently whenever circumstances indicate a long-lived asset may be impaired. When indicators of impairment exist, the Company estimates future undiscounted cash flows attributable to such assets. In the event future undiscounted cash flows do not exceed the carrying amount of the assets, the asset would be considered impaired. The impairment loss is measured based upon the difference between the carrying amount and the fair value of the assets. Goodwill represents the excess of the purchase price over the fair value of the net tangible and intangible assets acquired in a business combination. Goodwill is tested for impairment at the reporting unit level on an annual basis (October 1 for the Company) and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying value. For the periods presented, the Company did not have any goodwill impairment charges. Acquired intangible assets with a definite useful life are amortized over their estimated useful lives on a straight-line basis. Each period, the Company evaluates the estimated remaining useful life of its intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. Intangible assets assessed as having indefinite lives are not amortized, but are assessed for indicators that the useful life is no longer indefinite or for indicators of impairment each period. Investments The Company holds the following categories of investments, which are included in other non-current assets on the consolidated balance sheets. Equity method investments The Company holds equity investments in privately held companies. The Company applies the equity method of accounting for investments in other entities when it holds between 20% and 50% of the common stock or in-substance common stock in the entity, or when it exercises significant influence over the entity. Under the equity method, the Company’s share of each entity’s profit or loss is reflected in other expense (income), net in the consolidated statements of operations. Strategic investments The Company’s strategic investments primarily include investments in equity instruments where the Company (1) holds less than 20% ownership in the entity, and (2) does not exercise significant influence. These investments are recorded at cost and adjusted for observable transactions for same or similar investments of the same issuer (referred to as the measurement alternative) or impairment. Crypto asset borrowings The Company borrows crypto assets from third parties on an unsecured basis. Such crypto assets borrowed by the Company are reported in crypto assets held on the consolidated balance sheets. 139 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The borrowings are accounted for as hybrid instruments, with a liability host contract that contains an embedded derivative based on the changes in the fair value of the underlying crypto asset. The host contract is not accounted for as a debt instrument because it is not a financial liability, is carried at the fair value of the assets acquired and reported in crypto asset borrowings on the consolidated balance sheets. The embedded derivative is accounted for at fair value, with changes in fair value recognized in other operating expense, net in the consolidated statements of operations. The embedded derivatives are included in crypto asset borrowings on the consolidated balance sheets. The term of these borrowings can either be for a fixed term of less than one year or can be open-ended and repayable at the option of the Company or the lender. These borrowings bear a fee payable by the Company to the lender, which is based on a percentage of the amount borrowed and is denominated in the related crypto asset borrowed. The borrowing fee is recognized on an accrual basis and is included in other operating expense, net in the consolidated statements of operations. Derivative contracts Derivative contracts derive their value from underlying asset prices, other inputs or a combination of these factors. Derivative contracts are recognized as either assets or liabilities on the consolidated balance sheets at fair value, with changes in fair value recognized in other operating expense, net. The Company enters into arrangements that result in obtaining the right to receive or obligation to deliver a fixed amount of crypto assets in the future. These are hybrid instruments, consisting of a debt host contract that is initially measured at the fair value of the underlying crypto assets and is subsequently carried at amortized cost, and an embedded forward feature based on the changes in the fair value of the underlying crypto asset. The embedded forward is bifurcated from the host contract, and is subsequently measured at fair value. The Company also enters into foreign exchange forward contracts that act as economic hedges against the impact of changes in Euro on the Company’s intercompany transactions. The Company records changes in fair value of the forward contracts as part of other expense (income), net in the consolidated statements of operations. Derivatives designated as hedges The Company applies hedge accounting to certain derivatives executed for risk management purposes. To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. The Company uses fair value hedges primarily to hedge the fair value exposure of crypto asset prices. For qualifying fair value hedges, the changes in the fair value of the derivative and the fair value of the hedged item are recognized in current-period earnings in other operating expense, net in the consolidated statements of operations. Derivative amounts affecting earnings are recognized in the same line item as the earnings effect of the hedged item. Customer crypto assets and liabilities Customer crypto assets and liabilities represent the Company’s obligation to safeguard customers’ crypto assets in digital wallets on the Company’s platform. The Company safeguards these assets for customers and is obligated to safeguard them from loss, theft, or other misuse. The Company recognizes customer crypto liabilities and corresponding customer crypto assets, on initial recognition and at each reporting date, at fair value of the crypto assets. Any loss, theft, or other misuse would impact the measurement of customer crypto assets. Revenue recognition See Note 5. Revenue , for information on the Company’s accounting policies for revenue recognition. 140 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Contract acquisition costs The Company has elected to apply the practical expedient to recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that would otherwise have been recognized is one year or less. Transaction expense Transaction expense includes costs incurred to operate the Company’s platform, process crypto asset trades, and perform wallet services. These costs include account verification fees, miner fees to process transactions on blockchain networks, fees paid to payment processors and other financial institutions for customer transaction activity, and crypto asset losses due to transaction reversals. Transaction expense also includes rewards paid to users for staking activities conducted by the Company. Fixed-fee costs are expensed over the term of the contract and transaction-level costs are expensed as incurred. Technology and development Technology and development expenses include personnel-related expenses incurred in operating, maintaining, and enhancing the Company’s platform. These costs also include website hosting, infrastructure expenses, costs incurred in developing new products and services and the amortization of acquired developed technology. Sales and marketing Sales and marketing expenses primarily include costs related to customer acquisition, advertising and marketing programs, and personnel-related expenses. Sales and marketing costs are expensed as incurred. General and administrative General and administrative expenses include personnel-related expenses incurred to support the Company’s business, including legal, finance, compliance, human resources, customer support, executive, and other support operations. These costs also include software subscriptions for support services, facilities and equipment costs, depreciation, amortization of acquired customer relationship intangible assets, gains and losses on disposal of fixed assets, legal reserves and settlements, and other general overhead. General and administrative costs are expensed as incurred. Other operating expense, net Other operating expense, net includes the cost of the Company’s crypto assets used to fulfill customer accommodation transactions. Periodically, as an accommodation to customers, the Company may fulfill customer transactions using its own crypto assets. The Company has custody and control of the crypto assets prior to the sale to the customer. Accordingly, the Company records the total value of the sale in other revenue and the cost of the crypto asset in other operating expense, net. Other operating expense, net also includes impairment and realized gains on the sale of crypto assets, realized gains and losses resulting from the settlement of derivative instruments, and fair value gains and losses related to derivatives and derivatives designated in qualifying fair value hedge accounting relationships. Stock-based compensation The Company recognizes stock-based compensation expense using a fair-value based method for costs related to all equity awards granted under its equity incentive plans to employees, directors and non-employees of the Company including restricted stock, RSUs, stock options and purchase rights granted under the ESPP. 141 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The fair value of restricted stock and RSUs is estimated based on the fair value of the Company’s common stock on the date of grant. The Company estimates the fair value of stock options with only service-based conditions and purchase rights under the ESPP on the date of grant using the Black-Scholes-Merton Option-Pricing Model. The model requires management to make a number of assumptions, including the fair value and expected volatility of the Company’s underlying common stock price, expected life of the option, risk-free interest rate, and expected dividend yield. The fair value of the underlying stock is the fair value of the Company’s common stock on the date of grant. The expected stock price volatility assumption for the Company’s stock is determined by using a weighted average of the historical stock price volatility of comparable companies from a representative peer group, as sufficient trading history for the Company’s common stock is not available. The Company uses historical exercise information and contractual terms of options to estimate the expected term. The risk-free interest rate for periods within the expected life of the option is based on the U.S. Treasury zero coupon bonds with terms consistent with the expected term of the award at the time of grant. The expected dividend yield assumption is based on the Company’s history and expectation of no dividend payouts. Prior to the Direct Listing, the fair value of the underlying common stock was determined using the probability weighted expected return method, with a discounted cash flow model or a market multiples method used for each expected outcome. Following the Direct Listing, the fair value of the underlying common stock is the closing price of the Company’s Class A common stock as reported on the Nasdaq Global Select Market on the grant date. Stock-based compensation expense is recorded on a straight-line basis over the requisite service period. The Company has elected to account for forfeitures of awards as they occur, with previously recognized compensation reversed in the period that the awards are forfeited. Income taxes The Company accounts for income taxes using the asset and liability method whereby deferred tax asset and liability account balances are determined based on temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. A valuation allowance is established when management estimates that it is more likely than not that deferred tax assets will not be realized. Realization of deferred tax assets is dependent upon future pre-tax earnings, the reversal of temporary differences between book and tax income, and the expected tax rates in future periods. The Company is required to evaluate the tax positions taken in the course of preparing its tax returns to determine whether tax positions are more likely than not of being sustained by the applicable tax authority. Tax benefits of positions not deemed to meet the “more-likely-than-not” threshold would be recorded as a tax expense in the current year. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount that is initially recognized. It is the Company’s practice to recognize interest and penalties related to income tax matters in income tax expense. For U.S. federal tax purposes, crypto asset transactions are treated on the same tax principles as property transactions. The Company recognizes a gain or loss when crypto assets are exchanged for other property, in the amount of the difference between the fair market value of the property received and the tax basis of the exchanged crypto assets. Receipts of crypto assets in exchange for goods or services are included in taxable income at the fair market value on the date of receipt. 142 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Net income (loss) per share The Company computes net income (loss) per share using the two-class method required for participating securities. The two-class method requires income available to common stockholders for the period to be allocated between common stock and participating securities based upon their respective rights to receive dividends as if all income for the period had been distributed. The Company’s convertible preferred stock and certain of its restricted common stock were deemed participating securities. These participating securities do not contractually require the holders of such shares to participate in the Company’s losses. Basic net income (loss) per share is computed using the weighted-average number of outstanding shares of common stock during the period. Diluted net income (loss) per share is computed using the weighted-average number of outstanding shares of common stock and, when dilutive, potential shares of common stock outstanding during the period. Potential shares of common stock consist of incremental shares issuable upon the assumed exercise of stock options and warrants, vesting of RSUs, vesting of restricted common stock, conversion of the Company’s convertible preferred stock and c onvertible notes, and settlement of contingent consideration. Segment reporting Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (the “CODM”) in deciding how to allocate resources to an individual segment and in assessing performance. The Company’s Chief Executive Officer is the Company’s CODM. The CODM reviews financial information presented on a global consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance. As such, the Company has determined that it operates as one operating segment and one reportable segment. Recent accounting pronouncements Recently adopted accounting pronouncements On October 28, 2021, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2021-08, Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (“ASU 2021-08”). ASU 2021-08 amends Accounting Standards Codification 805 (“ASC 805”) to require acquiring entities to apply Topic 606 - Revenue from Contracts with Customer s to recognize and measure contract assets and contract liabilities in a business combination. The Company early adopted the standard on January 1, 2022. The adoption of the standard did not have a material impact on the Company’s consolidated financial statements. On March 31, 2022, the Securities and Exchange Commission (the “SEC”) issued Staff Accounting Bulletin No. 121 (“SAB 121”). SAB 121 sets out interpretive guidance from the staff of the SEC regarding the accounting for obligations to safeguard crypto assets that an entity holds for its customers. Safeguarding is defined as taking actions to secure customer crypto assets and the associated cryptographic key information and protecting them from loss, theft, or other misuse. The guidance requires an entity to recognize a liability for the obligation to safeguard the users’ assets, and recognize an associated asset for the crypto assets safeguarded. Both the liability and asset should be measured initially and subsequently at the fair value of the crypto assets being safeguarded. The guidance also requires additional disclosures related to the nature and amount of crypto assets that the entity is responsible for holding for its customers, with separate disclosure for each significant crypto asset, and the vulnerabilities the entity has due to any concentration in such activities. The Company has adopted this guidance as of June 30, 2022 with retrospective application as of January 1, 2022. The balances as of January 1, 2022 for the customer crypto assets and customer crypto liabilities were both $ 267.6 billion. 143 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Accounting pronouncements pending adoption On June 30, 2022, FASB issued Accounting Standards Update No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). ASU 2022-03 clarifies that a contractual sale restriction prohibiting the sale of an equity security is a characteristic of the reporting entity holding the equity security and is not included in the equity security's unit of account. The standard requires specific disclosures related to equity securities that are subject to contractual sale restrictions, including (1) the fair value of such equity securities reflected in the balance sheet, (2) the nature and remaining duration of the corresponding restrictions, and (3) any circumstances that could cause a lapse in the restrictions. The new standard is effective for the Company for its fiscal year beginning January 1, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting the standard on the Company’s consolidated financial statements. 3. RESTRUCTURING In June 2022, the Company announced and completed a restructuring impacting approximately 18 % of the Company’s headcount. This strategic reduction of the existing global workforce was intended to manage the Company’s operating expenses in response to market conditions and ongoing business prioritization efforts. As a result, approximately 1,100 employees in various departments and locations were terminated. As part of their termination, they were given separation pay and other personnel benefits. The following expenses were recognized within restructuring expenses in the consolidated statements of operations during the year ended December 31, 2022 (in thousands). The Company does not expect to incur any additional charges in connection with this restructuring. Year Ended December 31, 2022 Separation pay $ 38,741 Other personnel costs 1,962 Total $ 40,703 The following table summarizes the balance of the restructuring reserve and the changes in the reserve as of and for the year ended December 31, 2022 (in thousands): Expenses Incurred Payments Adjustments Accrued Balance as of December 31, 2022 Separation pay $ 39,259 $ ( 38,741 ) $ ( 518 ) $ — Other personnel costs 3,194 ( 1,962 ) ( 1,232 ) — Total $ 42,453 $ ( 40,703 ) $ ( 1,750 ) $ — 4. ACQUISITIONS 2022 acquisitions Unbound Security, Inc. On January 4, 2022, the Company completed the acquisition of Unbound Security, Inc. (“Unbound”) by acquiring all issued and outstanding shares of capital stock and stock options of Unbound. Unbound is a pioneer in a number of cryptographic security technologies, which the Company believes will play a key role in the Company’s product and security roadmap. 144 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements In accordance with ASC 805, Business Combinations , the acquisition was accounted for as a business combination under the acquisition method. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, synergies, and the use of purchased technology to develop future products and technologies. The final allocation of purchase consideration to assets and liabilities remains in process as the Company continues to evaluate certain balances, estimates, and assumptions during the measurement period (up to one year from the acquisition date). Any changes in the fair value of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. During the year ended December 31, 2022, a measurement period adjustment associated with deferred tax assets was recorded, resulting in an increase in other non-current assets of $ 4.1 million and a corresponding reduction in goodwill. The total consideration transferred in the acquisition was $ 258.0 million, consisting of the following (in thousands): Cash $ 151,424 Cash payable 126 Class A common stock of the Company 103,977 RSUs for shares of the Company’s Class A common stock 2,457 Total purchase consideration $ 257,984 Included in the purchase consideration are $ 21.7 million in cash and 85,324 shares of the Company’s Class A common stock that are subject to an indemnity holdback. The cash and shares subject to the indemnity holdback will be released 18 months after the closing date of the transaction. The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands): Cash and cash equivalents $ 10,560 Restricted cash 573 Accounts and loans receivable, net of allowance 4,981 Prepaid expenses and other current assets 4,182 Lease right-of-use assets 1,059 Property and equipment, net 1,248 Goodwill 222,732 Intangible assets, net 28,500 Other non-current assets 3,476 Total assets 277,311 Accounts payable 719 Accrued expenses and other current liabilities 11,325 Lease liabilities 1,059 Other non-current liabilities 6,224 Total liabilities 19,327 Net assets acquired $ 257,984 145 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data): Fair Value Useful Life at Acquisition (in Years) Developed technology $ 15,700 1 - 5 In-process research and development ("IPR&D") 2,500 N/A Customer relationships 10,300 2 The intangible assets will be amortized on a straight-line basis over their respective useful lives to technology and development expenses for developed technology and general and administrative expenses for customer relationships. Amortization of the IPR&D will be recognized in technology and development expenses once the research and development is placed into service as internally developed software. Management applied significant judgment in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to development costs and profit, costs to recreate customer relationships, market participation profit, and opportunity cost. Total acquisition costs of $ 3.0 million were incurred in relation to the acquisition, which were recognized as an expense and included in general and administrative expenses in the consolidated statements of operations. The impact of this acquisition was not considered significant to the Company’s consolidated financial statements for the current period presented and pro forma financial information has not been provided. FairXchange, Inc. On February 1, 2022, the Company completed the acquisition of FairXchange, Inc. (“FairX”) by acquiring all issued and outstanding shares of capital stock, stock options and warrants of FairX. FairX is a derivatives exchange which is registered with the U.S. Commodity Futures Trading Commission as a designated contract market (“DCM”) and the Company believes it has been a key stepping stone on the Company’s path to offer crypto derivatives to consumers and institutional customers in the United States. In accordance with ASC 805, Business Combinations , the acquisition was accounted for as a business combination under the acquisition method. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, market presence, synergies, and the use of purchased technology to develop future products and technologies. The final allocation of purchase consideration to assets and liabilities remains in process as the Company continues to evaluate certain balances, estimates, and assumptions during the measurement period (up to one year from the acquisition date). Any changes in the fair value of the assets acquired and liabilities assumed during the measurement period may result in adjustments to goodwill. During the year ended December 31, 2022, a measurement period adjustment associated with deferred tax assets was recorded, resulting in an increase in other non-current assets of $ 0.3 million and a corresponding reduction in goodwill. 146 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The total consideration transferred in the acquisition was $ 275.1 million, consisting of the following (in thousands): Cash $ 56,726 Cash payable 10,442 Class A common stock of the Company - issued 174,229 Class A common stock of the Company - to be issued 33,693 Total purchase consideration $ 275,090 The aggregate purchase consideration includes 170,397 shares of the Company’s Class A common stock to be issued after the acquisition date. The fair value of these shares on the acquisition date is included in additional paid-in capital. Additionally, included in the purchase consideration are $ 4.7 million in cash and 83,035 shares of the Company’s Class A common stock that are subject to an indemnity holdback. The cash and shares subject to the indemnity holdback will be released 15 months after the closing date of the transaction. The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the date of acquisition. The following table summarizes the preliminary fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands): Cash and cash equivalents $ 10,867 Accounts and loans receivable, net of allowance 411 Prepaid expenses and other current assets 20 Intangible assets, net 41,000 Goodwill 231,685 Other non-current assets 8,295 Total assets 292,278 Accounts payable 472 Accrued expenses and other current liabilities 5,796 Other non-current liabilities 10,920 Total liabilities 17,188 Net assets acquired $ 275,090 The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data): Fair Value Useful Life at Acquisition (in Years) DCM License $ 26,900 Indefinite Developed technology 10,700 5 Trading relationships 3,400 3 147 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The developed technology and trading relationships will be amortized on a straight-line basis over their respective useful lives to technology and development expenses for developed technology and general and administrative for trading relationships. The DCM license has an indefinite useful life and will not be amortized. Management applied significant judgment in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to forecasted revenues and expenses, development costs and profit, costs to recreate trading relationships, market participation profit, and opportunity cost. Total acquisition costs of $ 1.1 million were incurred related to the acquisition, which were recognized as an expense and included in general and administrative expenses in the consolidated statements of operations. The impact of this acquisition was not considered significant to the Company’s consolidated financial statements for the current period presented and pro forma financial information has not been provided. 2021 acquisitions Bison Trails On February 8, 2021, the Company completed the acquisition of Bison Trails Co. (“Bison Trails”) by acquiring all issued and outstanding common stock and stock options of Bison Trails. Bison Trails is a platform-as-a-service company that provides a suite of easy-to-use blockchain infrastructure products and services on multiple networks to custodians, exchanges and funds. Prior to the acquisition, the Company held a minority ownership stake in Bison Trails, which was accounted for as a cost method investment. In accordance with ASC 805, Business Combinations , the acquisition was accounted for as a business combination achieved in stages under the acquisition method. Accordingly, the cost method investment was remeasured to fair value as of the acquisition date. The Company considered multiple factors in determining the fair value of the previously held cost method investment, including the price negotiated with the selling shareholders and current trading multiples for comparable companies. Based on this analysis, the Company recognized an $ 8.8 million gain on remeasurement, which was recorded in other expense (income), net in th e consolidated statement of operations on the acquisition date. The purchase consideration was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date with the excess recorded as goodwill, none of which is expected to be deductible for tax purposes. The goodwill balance is primarily attributed to the assembled workforce, market presence, synergies, and the use of purchased technology to develop future products and technologies. The total consideration transferred in the acquisition was $ 457.3 million, consisting of the following (in thousands): Class A common stock of the Company $ 389,314 Previously held interest on acquisition date 10,863 Cash 28,726 Replacement of Bison Trails options 28,365 Total purchase consideration $ 457,268 Included in the purchase consideration are 496,434 shares of the Company’s Class A common stock that are subject to an indemnity holdback. The shares subject to the indemnity holdback was released 18 months after the closing date of the transaction. 148 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The results of operations and the fair values of the assets acquired and liabilities assumed have been included in t he consolidated financial statements from the date of acquisition. The following table summarizes the estimated fair values of assets acquired and liabilities assumed using a cost-based approach (in thousands): Cash and cash equivalents $ 12,201 Crypto assets held 5,177 Accounts and loans receivable, net of allowance 2,323 Prepaid expenses and other current assets 122 Intangible assets, net 39,100 Goodwill 404,167 Other non-current assets 1,221 Lease right-of-use assets 808 Total assets 465,119 Accounts payable 526 Accrued expenses and other current liabilities 1,920 Lease liabilities 808 Other non-current liabilities 4,597 Total liabilities 7,851 Net assets acquired $ 457,268 The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data): Fair Value Useful Life at Acquisition (in Years) Developed technology $ 36,000 3 IPR&D 1,200 N/A User base 1,900 3 The intangible assets will be amortized on a straight-line basis over their respective useful lives to technology and development expenses for developed technology and general and administrative expenses for user base. Amortization of the IPR&D will be recognized in technology and development expenses once the research and development is placed into service as internally developed software. Management applied significant judgement in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to development costs and profit, costs to recreate customer relationships, market participation profit, and opportunity cost. Total acquisition costs of $ 3.7 million were incurred related to the acquisition, which were recognized as an expense and included in general and administrative expenses in the consolidated statements of operations. The impact of this acquisition was not considered significant to the Company’s consolidated financial statements and pro forma financial information has not been provided. Other acquisitions During the year ended December 31, 2021, the Company also completed five other acquisitions that were not material individually, but were material when aggregated. In each of these acquisitions the Company acquired all issued and outstanding common stock and stock options of the acquiree. 149 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The total purchase consideration in each acquisition was allocated to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values as of the acquisition dates, with the excess recorded as goodwill. During the year ended December 31, 2022, measurement period adjustments associated with deferred tax assets were recorded, resulting in an increase in other non-current assets of $ 1.9 million and a corresponding reduction in goodwill. The aggregate total consideration transferred in these acquisitions was $ 211.0 million, consisting of the following (in thousands): Common stock of the Company - issued $ 65,717 Common stock of the Company - to be issued 58,173 RSUs 3,019 Cash 62,425 Cash payable 5,918 Contingent consideration arrangement 15,752 Aggregate total purchase consideration $ 211,004 The aggregate purchase consideration included 160,840 shares of the Company’s Class A common stock which was issued six months after the respective acquisition dates. The fair value of these shares on the respective acquisition dates was included in additional paid-in capital. Additionally, 51,619 shares of the Company’s Class A common stock included in the aggregate purchase consideration that are to be issued, are subject to an indemnity holdback. The shares subject to the indemnity holdback will be released between 15 and 18 months after the closing date of each transaction. Also included in the aggregate purchase consideration was the original estimated fair value of the contingent consideration arrangement agreed to in one of the acquisitions. The contingent consideration consists of two separate tranches. The first tranche will be settled one year after the closing date of the transaction and may result in delivery of up to 75,534 shares of the Company’s Class A common stock if specified revenue targets are met during the first year after the closing date. The second tranche will be settled two years after the closing date of the transaction and may result in delivery of up to another 75,534 shares of the Company’s Class A common stock, if specified revenue targets are met during the second year after the closing date. For each tranche, the revenue targets are adjusted for changes in the combined Bitcoin and Ethereum market capitalization since the closing date. The total number of the Company’s Class A common stock issued to settle the contingent consideration arrangement will be adjusted downward in proportion to recognized revenues that do not meet the specified revenue targets. In September 2022, upon resolution of the contingency and determination of the number of shares of the Company’s Class A common stock to be issued under the first tranche of the contingent consideration arrangement, the Company reclassified the value of the first tranche from other non-current liabilities into additional paid-in capital on the consolidated balance sheets. The second tranche of the contingent consideration arrangement is included in other non-current liabilities and is subject to subsequent measurement at fair value with changes in fair value recognized through other expense (income), net. 150 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The results of operations and the fair values of the assets acquired and liabilities assumed have been included in the consolidated financial statements from the respective dates of acquisition. The following table summarizes the aggregate estimated fair values of assets acquired and liabilities assumed using a cost-based approach (in thousands): Cash and cash equivalents $ 8,039 Accounts and loans receivable, net of allowance 57 Prepaid expenses and other current assets 276 Intangible assets, net 62,100 Goodwill 144,379 Total assets 214,851 Accounts payable 359 Accrued expenses and other current liabilities 983 Other non-current liabilities 2,505 Total liabilities 3,847 Net assets acquired $ 211,004 The excess of aggregate purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill of $ 144.4 million, of which $ 77.1 million is expected to be deductible for U.S. tax purposes. The goodwill balance is primarily attributed to the assembled workforce, market presence, synergies, and the use of purchased technology to develop future products and technologies. The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the dates of acquisition (in thousands, except for years data): Fair Value Useful Life at Acquisition (in Years) Developed technology $ 45,900 2.5 User base 1,000 2.5 IPR&D 2,300 N/A Customer relationships 12,900 4.3 The intangible assets will be amortized on a straight-line basis over their respective useful lives to technology and development expenses for developed technology and general and administrative expenses for customer relationships and user base. Amortization of the IPR&D will be recognized in technology and development expenses once the research and development is placed into service as internally developed software. Management applied significant judgement in determining the fair value of intangible assets, which involved the use of estimates and assumptions with respect to development costs and profit, costs to recreate customer relationships, market participation profit, and opportunity cost. These valuations incorporate significant unobservable inputs classified as Level 3. Total acquisition costs of $ 4.3 million were incurred related to these other acquisitions, which were recognized as expenses and included in general and administrative expenses in the consolidated statements of operations. The Company also entered into employment agreements with key employees of the acquirees, which included stock-based compensation arrangements. In conjunction with these agreements, the Company recognized $ 5.5 million of compensation expenses on the acquisition dates included in technology and development expenses. Stock-based compensation arrangements offered to these key employees with vesting conditions will be recognized as compensation expense in future periods. See Note 18. Stock-Based Compensation , for additional details regarding stock-based compensation issued to employees. 151 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The impact of these acquisitions were not considered significant to the Company’s consolidated financial statements and pro forma financial information has not been provided. 2020 acquisition Tagomi On July 31, 2020, the Company completed the acquisition of Tagomi Holdings, Inc. (“Tagomi”), by acquiring all issued and outstanding shares of common stock and stock options of Tagomi. Tagomi is an institutional trading platform for crypto assets and offers an end-to-end trading solution that caters to sophisticated traders and institutions. Tagomi operates an advanced trading platform which pools liquidity from multiple venues to offer efficient pricing, algorithmic trading, a suite of prime services (including delayed settlement and borrowing and lending of fiat currency and crypto assets), and a flexible account hierarchy and operational processes that meet the needs of institutional clients. The total consideration transferred in the acquisition was $ 41.8 million, consisting of the following (in thousands): Common stock of the Company $ 30,589 Replacement of Tagomi options and warrants 760 Cash 1,906 Settlement of pre-existing receivable 8,537 Total purchase consideration $ 41,792 The following table summarizes the estimated fair values of assets acquired and liabilities assumed as of the date of acquisition (in thousands): Cash and cash equivalents $ 13,777 Customer custodial funds 19,837 Crypto assets held 5,687 Accounts and loans receivable, net of allowance 5,795 Prepaid expenses and other current assets 633 Intangible assets, net 7,350 Goodwill 22,516 Other non-current assets 1,611 Total assets 77,206 Customer custodial cash liabilities 20,787 Accounts payable 5,887 Accrued expenses and other current liabilities 66 Crypto asset borrowings 8,674 Total liabilities 35,414 Net assets acquired $ 41,792 The excess of purchase consideration over the fair value of net tangible and identifiable intangible assets acquired was recorded as goodwill of $ 22.5 million, which is not deductible for tax purposes. The goodwill balance is primarily attributed to the market presence, synergies, and the use of purchased technology to develop future products and technologies. 152 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the date of acquisition (in thousands, except for years data): Fair Value Useful Life at Acquisition (in Years) Developed technology $ 6,600 3 Customer relationships 400 5 Licenses 350 Indefinite The developed technology, customer relationships, and licenses represent the estimated fair value of Tagomi’s trading platform, existing relationships with customers, and money transmitter licenses held, respectively. Total acquisition costs of $ 1.1 million were incurred related to the acquisition, which were recognized as an expense and included in general and administrative expenses in the consolidated statements of operations. A related party of the Company was a prior equity holder of Tagomi, and as a result of the acquisition, was entitled to receive up to 264,527 shares of the Company’s Class A common stock. The impact of this acquisition was not considered significant to the Company’s consolidated financial statements and pro forma financial information has not been provided. 5. REVENUE Revenue recognition The Company determines revenue recognition from contracts with customers through the following steps: • identification of the contract, or contracts, with the customer; • identification of the performance obligations in the contract; • determination of the transaction price; • allocation of the transaction price to the performance obligations in the contract; and • recognition of the revenue when, or as, the Company satisfies a performance obligation. Revenue is recognized when control of the promised goods or services is transferred to the customers, in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company primarily generates revenue through transaction fees charged on the platform. 153 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The following table presents revenue of the Company disaggregated by revenue source (in thousands): Year Ended December 31, 2022 2021 2020 Net revenue Transaction revenue Consumer, net $ 2,236,900 $ 6,490,992 $ 1,040,246 Institutional, net 119,344 346,274 55,928 Total transaction revenue 2,356,244 6,837,266 1,096,174 Subscription and services revenue Blockchain rewards 275,507 223,055 10,413 Custodial fee revenue 79,847 136,293 18,561 Interest income 326,956 25,835 5,535 Other subscription and services revenue (1) 110,261 132,304 10,484 Total subscription and services revenue 792,571 517,487 44,993 Total net revenue 3,148,815 7,354,753 1,141,167 Other revenue Crypto asset sales revenue 625 482,550 133,688 Corporate interest and other income 44,768 2,141 2,626 Total other revenue 45,393 484,691 136,314 Total revenue $ 3,194,208 $ 7,839,444 $ 1,277,481 __________________ (1) During the third quarter of 2022, the Company rebranded the “Earn” campaign to the “Learning Rewards” campaign. $ 17.7 million of Learning Rewards revenue is included within other subscription and services revenue for the year ended December 31, 2022. $ 63.1 million and $ 7.7 million of Learning Rewards revenue has been reclassified from its own line item to other subscription and services revenue for the years ended December 31, 2021 and 2020 , respectively, to conform to the current period presentation. Transaction revenue Consumer transaction revenue represents transaction fees earned from customers that are primarily individuals, while institutional transaction revenue represents transaction fees earned from institutional customers, such as hedge funds, family offices, principal trading firms, and financial institutions. Institutional clients can trade spot via the Coinbase Spot Market and derivatives via the Coinbase Derivatives Exchange, or utilize Coinbase Prime services depending on their needs. High-frequency trading firms, such as market makers and principal traders, benefit from lower latency by connecting through the Coinbase Spot Market and Coinbase Derivatives Exchange, while corporations and family offices can access an integrated suite of investment services through Coinbase Prime. The Company’s service is comprised of a single performance obligation to provide a crypto asset matching service when customers buy, sell, or convert crypto assets. That is, the Company is an agent in transactions between customers and presents revenue for the fees earned on a net basis. Judgment is required in determining whether the Company is the principal or the agent in transactions between customers. The Company evaluates the presentation of revenue on a gross or net basis based on whether it controls the crypto asset provided before it is transferred to the customer (gross) or whether it acts as an agent by arranging for other customers to provide the crypto asset to the customer (net). The Company does not control the crypto asset being provided before it is transferred to the buyer, does not have inventory risk related to the crypto asset, and is not responsible for the fulfillment of the crypto asset. The Company also does not set the price for the crypto asset as the price is a market rate established by users of the platform. As a result, the Company acts as an agent in facilitating the ability for a customer to purchase crypto assets from another customer. 154 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The Company considers its performance obligation satisfied, and recognizes revenue, at the point in time the transaction is processed. Contracts with customers are usually open-ended and can be terminated by either party without a termination penalty. Therefore, contracts are defined at the transaction level and do not extend beyond the service already provided. The Company charges a fee at the transaction level. The transaction price, represented by the trading fee, is calculated based on volume and varies depending on payment type and the value of the transaction. Crypto asset purchase or sale transactions executed by a customer on the Company’s platform is based on tiered pricing that is driven primarily by transaction volume processed for a specific historical period. The Company has concluded that this volume-based pricing approach does not constitute a future material right since the discount is within a range typically offered to a class of customers with similar volume. The transaction fee is collected from the customer at the time the transaction is executed. In certain instances, the transaction fee can be collected in crypto assets, with revenue measured based on the amount of crypto assets received and the fair value of the crypto assets at the time of the transaction. The transaction price includes estimates for reductions in revenue from transaction fee reversals that may not be recovered from customers. Such reversals occur when the customer disputes a transaction processed on their credit card or their bank account for a variety of reasons and seeks to have the charge reversed after the Company has processed the transaction. These amounts are estimated based upon the most likely amount of consideration to which the Company will be entitled. All estimates are based on historical experience and the Company’s best judgment at the time to the extent it is probable that a significant reversal of revenue recognized will not occur. All estimates of variable consideration are reassessed periodically. The total transaction price is allocated to the single performance obligation. While the Company recognizes transaction fee reversals as a reduction of net revenue, crypto asset losses related to those same transaction reversals are included in transaction expense. Blockchain rewards Blockchain rewards are primarily comprised of staking revenue in which the Company participates in networks with proof-of-stake consensus algorithms, through creating or validating blocks on the network using the staking validators that it controls. Blockchain protocols, or the participants that form the protocol networks, reward users for performing various activities on the blockchain. The most common form today is participating in proof-of-stake networks, however, there are other consensus algorithms. The Company considers itself the principal in transactions with the blockchain networks, and therefore presents such blockchain rewards earned on a gross basis. In exchange for participating in the consensus mechanism of these networks, the Company earns rewards in the form of the native token of the network. Each block creation or validation is a performance obligation. Revenue is recognized at the point when the block creation or validation is complete and the rewards are transferred into a digital wallet that the Company controls. Revenue is measured based on the number of tokens received and the fair value of the token at contract inception. Blockchain services offered as part of Coinbase Cloud’s blockchain infrastructure solutions are included in other subscription and services revenue. The Company’s staking revenue is included within blockchain rewards. 155 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Custodial fee revenue The Company provides a dedicated secure cold storage solution to customers and earns a fee, which is based on a contractual percentage of the daily value of assets under custody. The fee is collected on a monthly basis. These contracts typically have one performance obligation which is provided and satisfied over the term of the contracts as customers simultaneously receive and consume the benefits of the services. The contract may be terminated by a customer at any time, without incurring a penalty. Customers are billed on the last day of the month during which services were provided, with the amounts being due within thirty days of receipt of the invoice. Accounts receivable from customers for custodial fee revenue, net of allowance, were $ 7.8 million and $ 22.4 million as of December 31, 2022 and 2021, respectively. The allowance recognized against these fees was not material for any of the periods presented. Interest income and corporate interest and other income The Company earns income on fiat funds under a revenue sharing arrangement with the issuer of USDC, pursuant to which the Company shares any interest income generated from USDC reserves pro rata based on (i) the amount of USDC distributed by each respective party and (ii) the amount of USDC held on each respective party’s platform. The Company’s income is dependent on the balance of such fiat funds and the prevailing interest rate environment. The Company also earns interest income on loans issued to its consumers and institutional users. Additionally, the Company holds customer custodial funds and cash and cash equivalents at certain third-party banks which earn interest. Interest income earned from customer custodial funds, cash and cash equivalents and loans is calculated using the interest method and is not within the scope of Topic 606 – Revenue from Contracts with Customers . Interest earned on revenue sharing, customer custodial funds, and loans is included in interest income within subscription and services revenue. Interest earned on cash and cash equivalents is included in corporate interest and other income, within other revenue. Other subscription and services revenue Other subscription and services revenue primarily includes revenue from Coinbase Cloud, which includes staking application, delegation, and infrastructure services, Coinbase One, Learning Rewards, and other subscription licenses. Generally, revenue from other subscription and services contains one performance obligation, may have variable and non-cash consideration, and is recognized at a point in time or over the period that services are provided. Other revenue Other revenue includes the sale of crypto assets and corporate interest and other income. Periodically, as an accommodation to customers, the Company may fulfill customer transactions using the Company’s own crypto assets held for operating purposes. The Company has custody and control of the crypto assets prior to the sale to the customer and records revenue at the point in time when the sale to the customer is processed. Accordingly, the Company records the total value of the sale in other revenue and the cost of the crypto assets in other operating expense, net within the consolidated statements of operations. The cost of crypto assets used in fulfilling customer transactions was $ 0.5 million, $ 436.0 million and $ 131.9 million for the years ended December 31, 2022 , 2021 and 2020, respectively. Related party transactions Certain of the Company’s directors, executive officers, and principal owners, including immediate family members, are users of the Company’s platform. The Company recognized revenue from related party customers of $ 12.9 million, $ 29.1 million and $ 3.4 million for the years ended December 31, 2022, 2021, and 2020 respectively. As of December 31, 2022 and 2021, amounts receivable from related party customers were $ 1.3 million and $ 4.5 million, respectively. 156 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Revenue by geographic location In the table below are the revenues disaggregated by geography, based on domicile of the customers or booking location, as applicable (in thousands): Year Ended December 31, 2022 2021 2020 United States $ 2,684,425 $ 6,339,270 $ 966,153 Rest of the world (1) 509,783 1,500,174 311,328 Total revenue $ 3,194,208 $ 7,839,444 $ 1,277,481 __________________ (1) No other individual country accounted for more than 10% of total revenue. 6. ACCOUNTS AND LOANS RECEIVABLE, NET OF ALLOWANCE Accounts and loans receivable, net of allowance consisted of the following (in thousands): December 31, 2022 2021 Trade finance receivables $ — $ 1,865 Custodial fee revenue receivable 8,434 23,727 Loans receivable 98,203 218,461 Crypto asset loan receivables 85,826 — Interest and other receivables (1) 223,413 85,204 Allowance for doubtful accounts (2) ( 11,500 ) ( 24,551 ) Total accounts and loans receivable, net of allowance $ 404,376 $ 304,706 __________________ (1) Includes accounts receivables denominated in crypto assets of $ 6.9 million and $ 26.4 million as of December 31, 2022 and 2021, respectively. See Note 14. Derivatives for additional details. (2) Includes provision for transaction losses of $ 3.2 million and $ 16.8 million as of December 31, 2022 and 2021, respectively. Loans receivable The Company issues fiat loans to consumers and institutions. As of December 31, 2022 and 2021, the Company had issued loans with an outstanding balance of $ 98.2 million and $ 218.5 million, respectively. The related interest receivable on the loans as of December 31, 2022 and 2021, was $ 0.7 million and $ 1.3 million, respectively. The amounts loaned are collateralized with crypto assets held by the borrower in their crypto asset wallet on the Company’s platform. The Company does not have the right to use such collateral unless the borrower defaults on the loans. Due to the collateral requirements, the Company's process for collateral maintenance, and collateral held on platform, the Company’s credit exposure is significantly limited and no allowance was recorded against these loans receivable. The loans are measured at amortized cost. The carrying value of the loans approximates their fair value due to their short-term duration of less than 12 months. As of December 31, 2022 and 2021, there were no loans receivable past due. See Note 12. Accrued Expenses and Other Current Liabilities, for additional details regarding the Company’s obligation to return collateral. 157 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Crypto asset loan receivables The Company enters into transactions where it lends crypto assets to unaffiliated institutional customers. The Company evaluates the crypto asset loan receivables for credit loss. Due to the collateral requirements, the Company's process for collateral maintenance, and collateral held on platform, the Company’s credit exposure is significantly limited and no allowance, write-offs or recoveries were recorded against these crypto asset loan receivables as of and during the years ended December 31, 2022, 2021 and 2020. As of December 31, 2022 and 2021, there were no crypto asset loan receivables past due. The Company requires that borrowers pledge assets as collateral for those loans. See Note 12. Accrued Expenses and Other Current Liabilities, for additional details regarding the Company’s obligation to return collateral. 7. LEASES The Company has operating leases for corporate offices. The leases have remaining lease terms of less than one year to four years . The leases generally contain options to extend or terminate the lease. However, these were not included in determining the lease terms as the Company is not reasonably certain to exercise those options. The Company rents or subleases certain of these corporate offices to third parties. The Company recognized sublease income of $ 5.3 million, $ 6.7 million and $ 6.6 million for the years ended December 31, 2022, 2021 and 2020, respectively. The remaining terms of these subleases range from thirteen months to two years . The components of lease cost were as follows (in thousands): Year Ended December 31, 2022 2021 2020 Operating lease cost $ 36,724 $ 34,074 $ 30,231 Short-term lease cost 707 374 358 Total lease cost $ 37,431 $ 34,448 $ 30,589 Other information related to leases was as follows as of: December 31, 2022 2021 Weighted-average remaining lease term (in years) 1.2 2.0 Weighted-average discount rate 3.01 % 3.02 % The interest rate used to determine the present value of the future lease payments is the Company’s incremental borrowing rate because the interest rate implicit in the leases is not readily determinable. The Company’s incremental borrowing rate is estimated to approximate the interest rate on a collateralized basis with similar terms and payments, and in economic environments where the leased asset is located. 158 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Maturities of lease liabilities were as follows (in thousands): 2023 $ 36,259 2024 33,607 2025 8,820 2026 792 Thereafter — Total lease payments 79,478 Less imputed interest ( 3,700 ) Total $ 75,778 430 California office space In September 2020, the Company renegotiated the terms of its office space lease in San Francisco, California, which included a partial give back of space for which the lease had not yet commenced. The terms of the agreement provided that the Company would pay a cancellation fee of $ 7.9 million and commit to enter into leases at the lessor’s other properties, with a minimum committed spend of $ 15.5 million spread over the period from September 2020 to December 2025. In February 2023, the Company entered into an early termination agreement for its remaining office space lease in San Francisco, California, which will now terminate on March 31, 2023. The Company will pay a termination fee of $ 25.0 million and commit to spend an additional $ 2.0 million at the lessor’s other properties by March 31, 2025. The Company’s estimated lease liability as of March 31, 2023 and prior to the termination was expected to be $ 43.7 million. 8. PROPERTY AND EQUIPMENT, NET Property and equipment consisted of the following (in thousands): December 31, 2022 2021 Furniture and fixtures $ 7,217 $ 7,307 Construction in progress 163 535 Computers and equipment 5,852 3,542 Leasehold improvements 45,099 43,048 Capitalized software 198,537 47,044 Total cost 256,868 101,476 Accumulated depreciation and amortization ( 85,015 ) ( 42,246 ) Total, net $ 171,853 $ 59,230 Depreciation and amortization expense was $ 48.0 million, $ 18.4 million, and $ 14.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. Total additions to capitalized software were $ 178.6 million, $ 22.2 million and $ 12.1 million for the years ended December 31, 2022, 2021 and 2020, respectively. During the years ended December 31, 2022, 2021 and 2020, the Company recorded impairment charges of $ 21.8 million, $ 0 , and $ 0 , respectively, related to its property and equipment. Impairment expense is included in other operating expense, net in the consolidated statements of operations. 159 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Long-lived assets, which consisted of property and equipment, net and operating lease ROU assets, by geography were as follows (in thousands): December 31, 2022 2021 United States $ 229,737 $ 145,203 Rest of the world (1) 11,473 12,412 Total long-lived assets $ 241,210 $ 157,615 ________________ (1) No other individual country accounted for more than 10% of total long-lived assets. 9. GOODWILL, INTANGIBLE ASSETS, NET AND CRYPTO ASSETS HELD Goodwill The following table reflects the changes in the carrying amount of goodwill (in thousands): Year Ended December 31, 2022 2021 Balance, beginning of period $ 625,758 $ 77,212 Additions due to business combinations 454,417 548,546 Measurement period adjustments (1) ( 6,269 ) — Balance, end of period $ 1,073,906 $ 625,758 __________________ (1) The measurement period adjustments consisted of $ 4.1 million, $ 0.3 million and $ 1.9 million related to the Unbound acquisition, FairX acquisition and certain other acquisitions that were material when aggregated, respectively, and which were associated with the changes in deferred tax assets as a result of changes in estimates. There was no impairment recognized against goodwill at the beginning or end of the periods presented. 160 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Intangible assets, net Intangible assets, net consisted of the following (in thousands, except years data): As of December 31, 2022 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Weighted Average Remaining Useful Life (in Years) Amortizing intangible assets Acquired developed technology $ 126,692 $ ( 81,172 ) $ 45,520 2.3 User base 2,997 ( 2,154 ) 843 0.8 Customer relationships 86,691 ( 45,717 ) 40,974 2.6 Non-compete agreement 2,402 ( 1,641 ) 761 1.6 Assembled workforce 60,800 ( 44,857 ) 15,943 0.4 Trade Relationships 3,400 ( 1,039 ) 2,361 2.1 In-process research and development (1) 1,877 — 1,877 N/A Indefinite-lived intangible assets Domain name 250 — 250 N/A Licenses 26,900 — 26,900 N/A Total $ 312,009 $ ( 176,580 ) $ 135,429 __________________ (1) Amortization begins once the technology is placed in service. IPR&D is expected to have a useful life of three years once placed in service. As of December 31, 2021 Gross Carrying Amount Accumulated Amortization Intangible Assets, Net Weighted Average Remaining Useful Life (in Years) Amortizing intangible assets Acquired developed technology $ 100,908 $ ( 34,865 ) $ 66,043 2.0 User base 2,997 ( 1,020 ) 1,977 1.8 Customer relationships 79,491 ( 27,789 ) 51,702 3.7 Non-compete agreement 2,402 ( 1,161 ) 1,241 2.6 Assembled workforce 60,800 ( 8,324 ) 52,476 1.4 In-process research and development (1) 3,000 — 3,000 N/A Indefinite-lived intangible assets Domain name 250 — 250 N/A Total $ 249,848 $ ( 73,159 ) $ 176,689 __________________ (1) Amortization begins once the technology is placed in service. IPR&D is expected to have a useful life of three years once placed in service. Amortization expense of intangible assets was $ 106.1 million, $ 45.3 million and $ 16.7 million for the years ended December 31, 2022, 2021 and 2020, respectively. The Company estimates that there is no significant residual value related to its amortizing intangible assets. During the years ended December 31, 2022, 2021 and 2020 the Company recorded impairment charges of $ 4.7 million, $ 0.5 million and $ 0 , respectively, related to its intangible assets, excluding crypto assets held. Impairment expense is included in other operating expense, net in the consolidated statements of operations. 161 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The expected future amortization expense for intangible assets other than IPR&D as of December 31, 2022 is as follows (in thousands): 2023 $ 66,924 2024 21,361 2025 13,120 2026 4,819 2027 178 Thereafter — Total expected future amortization expense $ 106,402 Crypto assets held Crypto assets held consisted of the following (in thousands): December 31, 2022 2021 Recorded at impaired cost Crypto assets held as investments $ 155,251 $ 209,415 Crypto assets held for operating purposes 67,577 357,093 Total crypto assets held recorded at impaired cost 222,828 566,508 Recorded at fair value (1) Crypto assets held as investments 133,416 — Crypto assets borrowed 68,149 421,685 Total crypto assets held recorded at fair value 201,565 421,685 Total crypto assets held $ 424,393 $ 988,193 __________________ (1) Recorded at fair value as these crypto assets are held as the hedged item in qualifying fair value hedges. The Company recorded gross impairment cha rges of $ 757.3 million, $ 329.2 million and $ 8.4 million during the years ended December 31, 2022, 2021 and 2020 respectively, due to the observed market price of crypto assets decreasing below the carrying value during the respective periods. The Company partially recovered impairments recorded during the respective periods through subsequent crypto asset sales and disposals. Impairment expense is included in other operating expense, net in the consolidated statements of operations. See Note 14. Derivatives , for additional details regarding crypto assets held designated as hedged items in fair value hedges. See Note 15. Fair Value Measurements , for additional details regarding the carrying value of the Company’s crypto assets held. When the Company borrows crypto assets, it may be required to pledge collateral. The collateral requirements range from 100 % to 110 % of the fair value of the crypto assets borrowed, and the Company is required to pledge additional assets to maintain its required collateral percentage. The lender may have the right to use the collateral. If the lender has the right to use the collateral or if the collateral is fiat, the Company derecognizes the collateral that has been pledged and recognizes a right to receive the collateral. The lender is not obligated to return the collateral if the Company defaults on its borrowings. The Company has not defaulted on any of its borrowings. See Note 11. Prepaid Expenses and Other Assets, for additional details regarding the assets pledged as collateral. 162 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements 10. CUSTOMER ASSETS AND LIABILITIES The following table presents customers’ cash and crypto positions (in thousands): December 31, 2022 2021 Customer custodial funds $ 5,041,119 $ 10,617,552 Customer crypto assets (1) 75,413,188 — Total customer assets 80,454,307 10,617,552 Customer custodial cash liabilities $ 4,829,587 $ 10,480,612 Customer crypto liabilities (1) 75,413,188 — Total customer liabilities 80,242,775 10,480,612 __________________ (1) The Company adopted SAB 121 as of January 1, 2022. Prior to 2022, the Company did not record customer crypto assets and liabilities on its consolidated balance sheets. The Company safeguards crypto assets for customers in digital wallets and portions of cryptographic keys necessary to access crypto assets on the Company’s platform. The Company safeguards these assets and/or keys and is obligated to safeguard them from loss, theft, or other misuse. The Company records customer crypto assets as well as corresponding customer crypto liabilities, in accordance with recently adopted guidance, SAB 121. The Company maintains a record of all assets in digital wallets held on the Company’s platform as well as the full or a portion of private keys including backup keys, which are maintained on behalf of customers. For crypto assets where the Company does not maintain a private key or the ability to recover a customer’s private key, these balances are not recorded, as there is no related safeguarding obligation in accordance with SAB 121. The Company records the assets and liabilities, on the initial recognition and at each reporting date, at the fair value of the crypto assets which it safeguards for its customers. The Company has committed to securely store all crypto assets and cryptographic keys (or portions thereof) it holds on behalf of customers, and the value of these assets have been recorded as customer crypto liabilities and corresponding customer crypto assets. As such, the Company may be liable to its customers for losses arising from theft or loss of private keys. The Company has no reason to believe it will incur any expense associated with such potential liability because (i) it has no known or historical experience of claims to use as a basis of measurement, (ii) it accounts for and continually verifies the amount of crypto assets on its platform, and (iii) it has established security around private key management to minimize the risk of theft or loss. The Company has adopted a number of measures to safeguard crypto assets it secures including, but not limited to, holding customer crypto assets on a 1 :1 basis and strategically storing custodied assets offline using Coinbase’s cold storage process. The Company also does not reuse or rehypothecate customer crypto assets nor grant security interests in customer crypto assets, in each case unless required by law or expressly agreed to by the customer. Any loss or theft would impact the measurement of the customer crypto assets. During the year ended December 31, 2022, no losses have been incurred in connection with customer crypto assets. As of December 31, 2022, customer crypto assets and customer crypto liabilities safeguarded for related parties were $ 3.5 billion. As of December 31, 2022, customer custodial cash liabilities due to related party customers were $ 14.2 million. As of December 31, 2021, customer custodial cash liabilities due to related party customers were immaterial . 163 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The following table sets forth the fair value of customer crypto assets, as shown on the consolidated balance sheets, as customer crypto assets and customer crypto liabilities, as of December 31, 2022 (in billions): Fair Value Percentage of Total (1) Bitcoin $ 32.5 43.1 % Ethereum (2) 20.8 27.6 % USDC 1.1 1.4 % Other crypto assets 21.0 27.9 % Total customer crypto assets $ 75.4 100.0 % __________________ (1) As of December 31, 2022, no assets other than Bitcoin and Ethereum individually represented more than 5% of total customer crypto assets. (2) As of December 31, 2022, Ethereum included $ 3.0 billion of Ethereum 2. See Note 15. Fair Value Measurements , for additional details regarding the customer crypto assets and customer crypto liabilities. 11. PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other current assets, and other non-current assets consisted of the following (in thousands): December 31, 2022 2021 Prepaid expenses and other current assets Prepaid expenses $ 98,204 $ 123,246 Deposits — 9,658 Assets pledged as collateral 100,007 — Other 18,837 2,945 Total prepaid expenses and other current assets $ 217,048 $ 135,849 Other non-current assets Strategic investments $ 326,683 $ 363,950 Deferred tax assets 1,046,791 573,547 Deposits 10,989 13,347 Other 17,257 1,463 Total other non-current assets $ 1,401,720 $ 952,307 164 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Assets pledged as collateral The Company has pledged USDC that serves exclusively as collateral for certain crypto asset borrowings with a fair value of at least 100 % of the loan amount outstanding. The Company has pledged Bitcoin that serves exclusively as collateral for fiat loans with a fair value of at least 110 % of the loan amount outstanding. As of December 31, 2022, the balance of the Company’s pledged collateral consisted of the following (in thousands, except units): December 31, 2022 Units Fair Value Asset USDC 47,633,897 $ 47,634 Bitcoin 650 10,743 Fiat N/A 41,630 Total $ 100,007 As of December 31, 2021, the Company did not have any assets pledged as collateral recorded on the consolidated balance sheets. Strategic investments The Company makes strategic investments in various companies and technologies through Coinbase Ventures. Strategic investments primarily include equity investments in privately held companies without readily determinable fair values where the Company (1) holds less than 20% ownership in the entity, and (2) does not exercise significant influence, and accordingly, these investments are recorded at cost and adjusted for observable transactions for same or similar investments of the same issuer (referred to as the measurement alternative) and impairment. The changes in the carry value of strategic investments accounted for under the measurement alternative are presented below (in thousands): Year Ended December 31, 2022 2021 Carrying amount, beginning of period $ 352,431 $ 26,146 Net additions (1) 62,975 320,316 Upward adjustments 900 8,019 Previously held interest in Bison Trails (see Note 4) — ( 2,000 ) Impairments and downward adjustments ( 101,021 ) ( 50 ) Carrying amount, end of period (2) $ 315,285 $ 352,431 __________________ (1) Net additions include additions from purchases and reductions due to exits of securities and reclassifications due to changes to capital structure. (2) Excludes $ 11.4 million and $ 11.5 million of strategic investments during the years ended December 31, 2022 and 2021, respectively, that are not accounted for under the measurement alternative. Upward adjustments, impairments and downward adjustments from remeasurement of investments are included in other expense (income), net in the consolidated statements of operations. As of December 31, 2022, cumulative upward adjustments were $ 4.9 million and cumulative impairments and downward adjustments were $ 102.0 million. As of December 31, 2021, cumulative upward adjustments and cumulative impairments and downward adjustments were $ 4.6 million and $ 0.5 million, respectively. During the years ended December 31, 2022 and 2021, the Company invested an aggregate of $ 13.8 million and $ 203.1 million, respectively, in investees in which certain related parties of the Company held an interest over 10%. 165 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements 12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES Accrued expenses and other current liabilities consisted of the following (in thousands): December 31, 2022 2021 Accrued expenses $ 75,532 $ 195,810 Accrued payroll and payroll related 90,257 146,313 Income taxes payable 5,534 4,553 Short-term borrowings 20,519 20,060 Obligation to return collateral 26,874 — Other payables (1) 112,520 72,823 Total accrued expenses and other current liabilities $ 331,236 $ 439,559 __________________ (1) Includes other payables denominated in crypto assets of $ 8.8 million as of December 31, 2022 and an immaterial amount as of December 31, 2021. See Note 14. Derivatives for additional details. Short-term borrowings Short-term borrowings include borrowings with open terms or amounts payable within the next 12 months or sooner at the option of the Company or the lender. The weighted average interest rate on these borrowings were 4.49 % and 5.00 % per annum as of December 31, 2022 and 2021, respectively. During the year ended December 31, 2022, the Company repaid an aggregate of $ 191.1 million of short-term borrowings. Obligation to return collateral For loans receivable and crypto asset loans receivables, the Company requires borrowers to post collateral. The collateral requirements range from 30 % to 175 % of the fair value of the loan, and the borrower is required to pledge additional assets to maintain their required collateral percentage. The collateral pledged by borrowers is held on the Company’s platform and the Company may have the right to use the collateral. If the Company has the right to use the collateral, or if the collateral is fiat, the Company records the collateral as an asset with a corresponding obligation to return collateral. The Company is not obligated to return the collateral if the borrower defaults. As of December 31, 2022, the obligation to return collateral was comprised of only USDC. 13. INDEBTEDNESS The components of indebtedness were as follows as of December 31, 2022 (in thousands, except percentages): Indebtedness Effective Interest Rate Principal Amount Unamortized Debt Discount and Issuance Costs Net Carrying Amount 0.50 % 2026 Convertible Notes due on June 1, 2026 0.98 % $ 1,437,500 $ ( 23,339 ) $ 1,414,161 3.38 % 2028 Senior Notes due on October 1, 2028 3.57 % 1,000,000 ( 10,022 ) 989,978 3.63 % 2031 Senior Notes due on October 1, 2031 3.77 % 1,000,000 ( 10,691 ) 989,309 Total $ 3,437,500 $ ( 44,052 ) $ 3,393,448 166 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The components of indebtedness were as follows as of December 31, 2021 (in thousands, except percentages): Indebtedness Effective Interest Rate Principal Amount Unamortized Debt Discount and Issuance Costs Net Carrying Amount 0.50 % 2026 Convertible Notes due on June 1, 2026 0.98 % $ 1,437,500 $ ( 29,436 ) $ 1,408,064 3.38 % 2028 Senior Notes due on October 1, 2028 3.57 % 1,000,000 ( 11,565 ) 988,435 3.63 % 2031 Senior Notes due on October 1, 2031 3.77 % 1,000,000 ( 11,704 ) 988,296 Total $ 3,437,500 $ ( 52,705 ) $ 3,384,795 Convertible senior notes In May 2021, the Company issued an aggregate principal amount of $ 1.4 billion of convertible senior notes due in 2026 (the “2026 Convertible Notes”) pursuant to an indenture, dated May 18, 2021 (the “Convertible Notes Indenture”), between the Company and U.S. Bank National Association, as trustee. The 2026 Convertible Notes were offered and sold in a private offering to qualified institutional buyers pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”). The 2026 Convertible Notes are senior unsecured obligations of the Company and bear interest at a rate of 0.50 % per year payable semi-annually in arrears on June 1 and December 1 of each year, beginning on December 1, 2021. The 2026 Convertible Notes mature on June 1, 2026, unless earlier converted, redeemed or repurchased. The proceeds received of $ 1.4 billion were net of a 1 % original issue discount. The initial conversion rate and conversion rate for the 2026 Convertible Notes is 2.6994 shares of the Company's Class A common stock per $1,000 principal amount of 2026 Convertible Notes, which is equivalent to an initial conversion price of approximately $ 370.45 per share of the Class A common stock. The conversion rate and conversion price are subject to customary adjustments under certain circumstances in accordance with the terms of the Convertible Notes Indenture. The 2026 Convertible Notes will be convertible at the option of the holders before December 1, 2025 only upon the occurrence of certain events, and from and after December 1, 2025, at any time at their election until the close of business on the second scheduled trading day immediately preceding June 1, 2026, only under certain circumstances. Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as applicable, cash, shares of the Company’s Class A common stock or a combination of cash and shares of the Company’s Class A common stock, at the Company’s election, based on the applicable conversion rate. In addition, if certain corporate events that constitute a make-whole fundamental change (as defined in the Convertible Notes Indenture) occur, then the conversion rate will, in certain circumstances, be increased for a specified period of time. Additionally, in the event of a corporate event constituting a fundamental change (as defined in the Convertible Notes Indenture), holders of the 2026 Convertible Notes may require the Company to repurchase all or a portion of their 2026 Convertible Notes at a repurchase price equal to 100 % of the principal amount of the 2026 Convertible Notes being repurchased, plus accrued and unpaid special interest or additional interest, if any, to, but excluding, the date of the fundamental change repurchase. The Company accounted for the 2026 Convertible Notes wholly as debt because (1) the conversion features do not require bifurcation as a derivative under ASC 815 and (2) the 2026 Convertible Notes were not issued at a substantial premium. Discounts on the 2026 Convertible Notes reflect a 1 % original issue discount of $ 14.4 million and debt issuance costs related to the 2026 Convertible Notes of $ 19.4 million, which include commissions payable to the initial purchasers and third-party offering costs. 167 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Capped calls On May 18, 2021, in connection with the pricing of the 2026 Convertible Notes, the Company entered into privately negotiated capped call transactions (the “Capped Calls”) with certain financial institutions (the "option counterparties") at a cost of $ 90.1 million. The Capped Calls cover, subject to customary adjustments, the number of shares of the Company’s Class A common stock initially underlying the 2026 Convertible Notes. By entering into the Capped Calls, the Company expects to reduce the potential dilution to its Class A common stock (or, in the event a conversion of the 2026 Convertible Notes is settled in cash, to reduce its cash payment obligation) in the event that at the time of conversion of the 2026 Convertible Notes its Class A common stock price exceeds the conversion price of the 2026 Convertible Notes. The Capped Calls have an initial strike price of approximately $ 370.45 per share of Class A common stock and an initial cap price of approximately $ 478.00 per share of Class A common stock. The Capped Calls meet the criteria for classification in equity, are not remeasured each reporting period and are included as a reduction to additional paid-in capital within stockholders’ equity. Senior notes In September 2021, the Company completed the issuance of an aggregate principal amount of $ 1.0 billion of senior notes due on October 1, 2028 (the “2028 Senior Notes”) and an aggregate principal amount of $ 1.0 billion of senior notes due on October 1, 2031 (the “2031 Senior Notes” and together with the 2028 Senior Notes, the “Senior Notes”). The Senior Notes were issued within the United States only to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act, and outside the United States to non-U.S. persons pursuant to Regulation S under the Securities Act. The Company issued the Senior Notes at par and paid approximately $ 24.0 million in total debt issuance costs, which includes commissions payable to the initial purchasers and third-party offering costs. Interest on the Senior Notes is payable semi-annually in arrears on April 1 and October 1 of each year, beginning on April 2022 at 3.375 % per annum for the 2028 Senior Notes and 3.625 % per annum for the 2031 Notes. The entire principal amount of the Senior Notes is due at the time of maturity, unless repurchased or redeemed at an earlier date. The Senior Notes were issued pursuant to an indenture, dated September 17, 2021 (the “Senior Notes Indenture”), among the Company, the Guarantor (as defined below) and U.S. Bank National Association, as trustee. The Senior Notes are redeemable at the Company’s discretion, in whole or in part, at any time. If redeemed prior to October 1, 2024 for the 2028 Senior Notes and October 1, 2026 for the 2031 Senior Notes, the redemption price is subject to a make-whole premium calculated by reference to then-current U.S. Treasury rates plus a fixed spread, plus any accrued and unpaid interest. If redeemed on or after those respective dates, the make-whole premium does not apply. In addition, prior to October 1, 2024, the Company may redeem up to 40 % of the aggregate principal amount of the Senior Notes with net cash proceeds from certain equity offerings at a redemption price equal to 103.375 % of the principal amount of the 2028 Senior Notes to be redeemed and 103.625 % of the principal amount of the 2031 Senior Notes to be redeemed, in each case, plus any accrued and unpaid interest. Upon the occurrence of a change of control triggering event (as defined in the Senior Notes Indenture), the Company must offer to repurchase each series of Senior Notes at a repurchase price equal to 101 % of the principal amount of the Senior Notes to be repurchased, plus any accrued and unpaid interest, to, but excluding, the applicable repurchase date. The Senior Notes are guaranteed by one of the Company’s domestic subsidiaries, Coinbase, Inc. (the “Guarantor”). The indenture governing the Senior Notes contains customary covenants that restrict the ability of the Company and certain of its subsidiaries to incur debt and liens. The Company is not aware of any instances of non-compliance with the covenants as of December 31, 2022. 168 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Interest The following table summarizes the interest expense for the 2026 Convertible Notes, the 2028 Senior Notes and the 2031 Senior Notes (in thousands): Year Ended December 31, 2022 2021 2020 Coupon interest $ 77,235 $ 24,129 $ — Amortization of debt discount and issuance costs 8,653 5,031 — Total $ 85,888 $ 29,160 $ — Debt discounts and debt issuance costs are amortized to interest expense using the effective interest method over the contractual term of the respective note. 14. DERIVATIVES The following outlines the Company’s derivatives and the related hedge accounting designation, as applicable. Type of Derivative Description of Derivative Location of Host Contract and Derivative on Balance Sheets Crypto asset borrowings (1) The Company borrowed crypto assets that resulted in the obligation to deliver a fixed amount of crypto assets in the future. Crypto asset borrowings Accounts and loans receivable denominated in crypto assets Accounts receivable denominated in crypto assets: The Company provided services for which, under the contract, the customer pays in crypto assets. The amount of crypto assets are fixed at the time of invoicing. Crypto asset loans receivable: The Company lends crypto assets to institutions. The amount of crypto assets are fixed at the time of loan origination. In both of the above cases, the right to receive fixed amounts of crypto assets consists of a receivable host contract and an embedded forward contract to purchase crypto assets. Accounts and loans receivable, net of allowance Other payables denominated in crypto assets The Company entered into arrangements that result in the obligation to deliver a fixed amount of crypto assets in the future. Accrued expenses and other current liabilities Crypto asset futures (1) The Company entered into short positions on futures contracts to minimize the exposure on the change in the fair value price of crypto assets held. Accounts and loans receivable, net of allowance Crypto assets pledged as collateral The Company derecognizes the collateral that has been pledged and recognizes a right to receive a fixed amount of crypto assets pledged as collateral if the lender has the right to use the collateral. The Company has pledged Bitcoin that serves exclusively as collateral for fiat loans. Prepaid expenses and other current assets __________________ (1) For risk management purposes, the Company applies hedge accounting using these derivative instruments in qualifying fair value hedges to primarily hedge the fair value exposure of crypto asset prices. 169 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Impact of derivatives on the consolidated balance sheets The following table summarizes the notional amounts of derivative instruments outstanding, measured in U.S. dollar equivalents (in thousands): December 31, 2022 2021 Designated as hedging instrument Crypto asset borrowings with embedded derivatives $ 80,999 $ 669,445 Crypto asset futures (1) 136,230 — Not designated as hedging instrument Crypto asset borrowings with embedded derivatives 70,462 — Accounts and loans receivable denominated in crypto assets 101,598 17,415 Other payables denominated in crypto assets 4,267 — Crypto asset futures (1) 12,462 — Crypto assets pledged as collateral 13,103 — __________________ (1) Derivative transactions are measured in terms of the notional amount; however, this amount is not recorded on the consolidated balance sheets and is not, when viewed in isolation, a meaningful measure of the risk profile of the derivative instruments. The notional amount is generally not exchanged, but is used only as the underlying basis on which the value of exchange payments or settlement under these contracts are determined. The following tables summarize information on derivative assets and liabilities that are reflected on the Company’s consolidated balance sheets, by accounting designation (in thousands): Gross Derivative Assets Gross Derivative Liabilities December 31, 2022 Not Designated as Hedges Designated as Hedges Total Derivative Assets Not Designated as Hedges Designated as Hedges Total Derivative Liabilities Crypto asset borrowings with embedded derivatives (1) $ 2,266 $ — $ 2,266 $ 657 $ 1,653 $ 2,310 Accounts and loans receivable denominated in crypto assets 302 — 302 9,146 — 9,146 Other payables denominated in crypto assets 1,270 — 1,270 5,767 — 5,767 Crypto assets pledged as collateral — — — 2,360 — 2,360 Total fair value of derivative assets and liabilities $ 3,838 $ — $ 3,838 $ 17,930 $ 1,653 $ 19,583 Gross Derivative Assets Gross Derivative Liabilities December 31, 2021 Not Designated as Hedges Designated as Hedges Total Derivative Assets Not Designated as Hedges Designated as Hedges Total Derivative Liabilities Crypto asset borrowings with embedded derivatives (1) $ — $ 336,396 $ 336,396 $ — $ 93,616 $ 93,616 Accounts receivable denominated in crypto assets 9,033 — 9,033 — — — Total fair value of derivative assets and liabilities $ 9,033 $ 336,396 $ 345,429 $ — $ 93,616 $ 93,616 __________________ (1) During the years ended December 31, 2022 and 2021, the fees on these borrowings ranged from 0.0 % to 9.0 % and 0.0 % to 10.0 %, respectively. During the years ended December 31, 2022 and 2021, the Company incurred $ 6.7 million and $ 11.8 million, respectively, of borrowing fees in crypto assets. Borrowing fees are included in other operating expense, net in the consolidated statements of operations. 170 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Impact of derivatives on the consolidated statements of operations Gains (losses) on derivative instruments recognized in the Company’s consolidated statements of operations were as follows (in thousands): Year Ended December 31, 2022 Year Ended December 31, 2021 Derivatives Hedged Items Income Statement Impact Derivatives Hedged Items Income Statement Impact Designated as fair value hedging instruments Crypto asset borrowings with embedded derivatives (1) $ 359,240 $ ( 359,528 ) $ ( 288 ) $ 87,730 $ ( 70,577 ) $ 17,153 Crypto asset futures (1) 13,571 ( 12,994 ) 577 — — — Not designated as hedging instruments Crypto asset borrowings with embedded derivatives (1) 11,242 — 11,242 — — — Accounts and loans receivable denominated in crypto assets (1) ( 24,969 ) — ( 24,969 ) — — — Other payables denominated in crypto assets (1) 5,271 — 5,271 — — — Crypto asset futures (1) 1,735 — 1,735 — — — Foreign currency forward contracts (2) ( 59,063 ) — ( 59,063 ) — — — Crypto assets pledged as collateral (1) ( 2,360 ) — ( 2,360 ) — — — Total $ 304,667 $ ( 372,522 ) $ ( 67,855 ) $ 87,730 $ ( 70,577 ) $ 17,153 _______________ (1) Changes in fair value are recognized in other operating expense, net in the consolidated statements of operations. (2) Changes in fair value are recognized in other expense (income), net. The forward contracts were closed out during the fourth quarter of 2022, and as of December 31, 2022, the Company does not have any open contracts for foreign exchange forwards. The following amounts were recorded on the consolidated balance sheets related to certain cumulative fair value hedge basis adjustments that are expected to reverse through the consolidated statements of operations in future periods as an adjustment to other operating expense, net (in thousands): Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Items December 31, 2022 Carrying Amount of the Hedged Items Active Hedging Relationships Discontinued Hedging Relationships Total Crypto assets held $ 201,565 $ ( 562 ) $ 670 $ 108 Cumulative Amount of Fair Value Hedging Adjustments Included in the Carrying Amount of Hedged Items December 31, 2021 Carrying Amount of the Hedged Items Active Hedging Relationships Discontinued Hedging Relationships Total Crypto assets held $ 421,685 $ ( 240,771 ) $ — $ ( 240,771 ) 171 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements 15. FAIR VALUE MEASUREMENTS The following table sets forth by level, within the fair value hierarchy, the Company’s assets and liabilities measured and recorded at fair value on a recurring basis (in thousands): December 31, 2022 Level 1 Level 2 Level 3 Total Assets Cash equivalents (1) $ 2,250,065 $ — $ — $ 2,250,065 Customer custodial funds (2) 2,088,132 — — 2,088,132 Crypto assets held (3) 201,565 — — 201,565 Derivative assets (4) — 3,838 — 3,838 Crypto asset loan receivables (5) — 85,826 — 85,826 Customer crypto assets — 75,413,188 — 75,413,188 Total assets $ 4,539,762 $ 75,502,852 $ — $ 80,042,614 Liabilities Derivative liabilities (4) $ — $ 19,583 $ — $ 19,583 Contingent consideration arrangement — — 1,855 1,855 Customer crypto liabilities — 75,413,188 — 75,413,188 Total liabilities $ — $ 75,432,771 $ 1,855 $ 75,434,626 December 31, 2021 Level 1 Level 2 Level 3 Total Assets Cash equivalents (1) $ 4,813,621 $ — $ — $ 4,813,621 Customer custodial funds (2) 3,566,072 — — 3,566,072 Crypto assets held (3) — 421,685 — 421,685 Derivative assets (4) — 345,429 — 345,429 Total assets $ 8,379,693 $ 767,114 $ — $ 9,146,807 Liabilities Derivative liabilities (4) $ — $ 93,616 $ — $ 93,616 Contingent consideration arrangement — — 14,828 14,828 Total liabilities $ — $ 93,616 $ 14,828 $ 108,444 __________________ (1) Represents money market funds. Excludes $ 2.0 billion of corporate cash held in deposit at banks and $ 143.2 million held at venues, which were not measured and recorded at fair value as of December 31, 2022. Excludes $ 2.1 billion of corporate cash held in deposit at banks and $ 168.9 million held at venues, which were not measured and recorded at fair value as of December 31, 2021. (2) Represents money market funds. Excludes customer custodial funds of $ 3.0 billion and $ 7.1 billion held in deposit at financial institutions and not measured and recorded at fair value as of December 31, 2022 and 2021, respectively. (3) Includes crypto assets held that have been designated as hedged items in fair value hedges and excludes crypto assets of $ 222.8 million and $ 566.5 million held at cost as of December 31, 2022 and 2021, respectively. (4) See Note 14. Derivatives for additional details. (5) Includes the embedded derivative asset of $ 0.3 million and $ 0 and embedded derivative liability of $ 6.0 million and $ 0 related to the Company's crypto asset loan receivables as of December 31, 2022 and 2021, respectively. See Note 14. Derivatives for additional details. The Company did not make any transfers into or out of Level 3 of the fair value hierarchy during the years ended December 31, 2022 and 2021. 172 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Customer crypto assets and liabilities represent the Company’s obligation to safeguard customers’ crypto assets. Accordingly, the Company has valued the assets and liabilities using quoted market prices for the underlying crypto assets which is based on Level 2 inputs. Level 3 contingent consideration arrangement liability The following table presents a reconciliation of the contingent consideration arrangement measured at fair value on a recurring basis using significant unobservable inputs (in thousands): Year Ended December 31, 2022 2021 Balance, beginning of period $ 14,828 $ — Fair value recorded in connection with acquisition — 15,752 Change in fair value ( 8,312 ) ( 924 ) Settlement ( 4,661 ) — Balance, end of period $ 1,855 $ 14,828 On October 21, 2022, the Company issued 57,640 shares of its Class A common stock to settle a certain contingent consideration arrangement pursuant to the terms of the arrangement. The Company’s contingent consideration arrangements were included in other non-current liabilities and changes in fair value are recognized through other expense (income), net. During the years ended December 31, 2022 and 2021, the estimated fair value of the contingent consideration arrangement was determined using the Monte Carlo Simulation Model and applying a risk-adjusted discount rate to the expected payoff on each of the settlement dates. The expected payoff was determined by forecasting revenues for the acquired entity and simulating changes to the price of the Company’s Class A common stock, as well as Bitcoin and Ethereum market capitalization, using a risk-neutral Geometric Brownian Motion Path. The simulations also utilized the estimated volatility of and correlation between these variables. The following significant unobservable inputs were used: Year Ended December 31, 2022 2021 Discount rate 30.0 % 30.0 % Volatility of forecasted revenues 100.0 % - 129.0 % 146.1 % Assets and liabilities measured and recorded at fair value on a non-recurring basis The Company’s non-financial assets, such as goodwill, intangible assets, property and equipment, and crypto assets held but not designated in hedging relationships are adjusted to fair value when an impairment charge is recognized. The Company’s strategic investments are also measured at fair value on a non-recurring basis. Such fair value measurements are based predominantly on Level 3 inputs. The carrying value of the Company’s strategic investments is adjusted based on an Option-Pricing Model that uses publicly available market data of comparable companies and other unobservable inputs including expected volatility, expected time to liquidity, adjustments for other company-specific developments, and the rights and obligations of the securities the Company holds. Fair value of crypto assets held are predominantly based on Level 1 inputs. 173 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Assets and liabilities not measured and recorded at fair value The Company’s financial instruments, including certain cash and cash equivalents, restricted cash, certain customer custodial funds, USDC, customer custodial cash liabilities, short-term borrowings and loans receivable are carried at amortized cost, which approximates their fair value. If these financial instruments were recorded at fair value, they would be based on Level 1 inputs, except for short-term borrowings and loans receivable which would be based on Level 2 and Level 3 inputs, respectively. The Company estimates the fair value of its 2026 Convertible Notes and Senior Notes based on quoted prices in markets that are not active, which is considered a Level 2 valuation input. As of December 31, 2022, the estimated fair value of the 2026 Convertible Notes and Senior Notes were $ 826.1 million and $ 1.0 billion, respectively. 16. CONVERTIBLE PREFERRED STOCK On April 1, 2021, in anticipation of the Direct Listing and following a vote by the requisite holders of the convertible preferred stock, all outstanding shares of the Company’s convertible preferred stock were converted into 8,556,952 shares of the Company’s Class A common stock and 103,850,006 shares of the Company’s Class B common stock. Effective immediately following the conversion, the Company amended and restated its certificate of incorporation (the “Restated Certificate of Incorporation”) to authorize 500,000,000 shares of undesignated preferred stock. See Note 17. Common Stock for additional details. The Company’s board of directors (the “Board”) has the authority to determine the price, rights, preferences, privileges and restrictions, including voting rights, of those shares without any further vote or action by the stockholders. As of December 31, 2022 and 2021, there was no convertible preferred stock issued and outstanding. 17. COMMON STOCK Effective April 1, 2021, the Company filed the Restated Certificate of Incorporation, amending and restating its certificate of incorporation to authorize 10,000,000,000 shares of Class A common stock, 500,000,000 shares of Class B common stock, 500,000,000 shares of undesignated common stock, and 500,000,000 shares of undesignated preferred stock. Shares of Class A common stock and Class B common stock will be treated equally, identically and ratably, on a per share basis, with respect to dividends that may be declared by the Board. Holders of Class A common stock are entitled to one vote per share, and holders of Class B common stock are entitled to 20 votes per share. Holders of Class A common stock and Class B common stock generally vote together as a single class on all matters (including the election of directors) submitted to a vote of the stockholders of the Company. Upon a liquidation, dissolution or winding-up of the Company, the assets legally available for distribution to stockholders would be distributed ratably among the holders of Class A common stock and Class B common stock and any participating preferred stock or new series of common stock outstanding at that time, subject to prior satisfaction of all outstanding debt and liabilities and the preferential rights of and the payment of liquidation preferences, if any, on any outstanding shares of preferred stock or new series of common stock. Shares of Class B common stock are convertible at any time at the option of the holder into shares of Class A common stock on a one -to-one basis. In addition, each share of Class B common stock will automatically convert into a share of Class A common stock upon a sale or transfer (other than with respect to certain estate planning and other transfers). Further, upon certain events specified in the Restated Certificate of Incorporation, all outstanding shares of Class B common stock will convert automatically into shares of Class A common stock. 174 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements The Company has reserved shares of Class A common stock and Class B common stock for issuance for the following purposes (in thousands): December 31, 2022 2021 Class A common stock Options issued and outstanding under the 2013 Amended and Restated Stock Plan (the “2013 Plan”) 982 1,569 Options issued and outstanding under the 2019 Equity Incentive Plan (the “2019 Plan”) 25,314 29,311 RSUs issued and outstanding under the 2019 Plan 2,418 5,851 Options issued and outstanding under the 2021 Equity Incentive Plan (the “2021 Plan”) 862 — RSUs issued and outstanding under the 2021 Plan 2,911 1,402 Shares available for future issuance under the 2021 Plan 42,819 35,856 Shares available for future issuance under the ESPP 6,701 5,125 Replacement options issued and outstanding from the Tagomi acquisition 1 4 Replacement options issued and outstanding from the Bison Trails acquisition 134 223 RSUs issued and outstanding from other acquisitions — 229 Shares available for future issuance of warrants 2,296 2,296 Total Class A common stock shares reserved 84,438 81,866 Class B common stock Options issued and outstanding under the 2013 Plan 4,502 6,101 Total Class B common stock shares reserved 4,502 6,101 18. STOCK-BASED COMPENSATION Stock plans The Company maintains four equity incentive plans: the 2013 Plan, the 2019 Plan, and the 2021 Plan (together, the “Plans”), and the ESPP. Following the Direct Listing, the Company has only issued awards under the 2021 Plan and the ESPP, and no additional awards will be granted under the 2013 Plan and 2019 Plan. In addition, certain of the Company’s existing options assumed in connection with acquisitions are governed by the terms of the acquired company’s equity awards plan. In February 2021, the Board approved and adopted the 2021 Plan. The 2021 Plan became effective on March 31, 2021, the date immediately prior to the effective date of the Company’s registration statement for the Direct Listing. The 2021 Plan serves as the successor to the 2019 Plan. Outstanding awards under the 2013 Plan and 2019 Plan continue to be subject to their original terms and conditions. The 2021 Plan provides for the granting of incentive stock options, RSUs, restricted stock, stock appreciation rights and performance and stock bonus awards to assist in attracting, retaining and motivating employees. The number of shares available for grant and issuance under the 2021 Plan will be automatically increased on January 1st of each of the first ten fiscal years during the term of the 2021 Plan by the lesser of (a) five percent of the total number of shares of all classes of the Company’s common stock issued and outstanding on an as converted to common stock basis on each December 31st immediately prior to the date of increase or (b) such number of shares determined by the Board. As of December 31, 2022 and 2021, only stock options and RSUs were issued and outstanding under the Plans. 175 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Stock options Options granted under the Plans may be either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees and non-employees. Options under the Plans may be granted for contractual periods of up to ten years and at prices determined by the Board, provided, however, that the exercise price of an ISO and NSO shall not be less than 100 % of the estimated fair value of the underlying shares on the date of the grant ( 110 % if granted to a stockholder who owns more than ten percent of the total combined voting power of all classes of stock of the Company or any parent or subsidiary). Under the 2013 Plan and 2019 Plan, options granted to new employees of the Company generally vest over four years and vest at a rate of 25 % upon the first anniversary of the issuance date and 1/48 per month thereafter. Refresher options granted to existing employees of the Company generally vest in equal monthly installments over four years . No additional awards have been or will be granted under the 2013 Plan and 2019 Plan following the Company’s Direct Listing. Under the 2021 Plan, options are granted to executives and eligible non-executive employees which vest in equal quarterly installments over a period of three years. The 2013 Plan and 2019 Plan allow for a seven -year exercise window post-termination for employees of the Company who have provided at least two years of continuous service to the Company as of their termination date. Activity of options outstanding are as follows (in thousands, except per share and years data): Options Outstanding Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (Years) Aggregate Intrinsic Value Balance at January 1, 2022 37,208 $ 18.60 7.83 $ 8,698,078 Granted 937 177.79 Exercised ( 3,858 ) 13.32 Forfeited and cancelled ( 2,492 ) 26.57 Balance at December 31, 2022 31,795 $ 23.31 6.95 $ 504,222 Vested and exercisable at December 31, 2022 19,205 $ 19.25 6.53 $ 351,598 Vested and expected to vest at December 31, 2022 25,690 $ 23.27 6.79 $ 431,404 During the year ended December 31, 2022, the Company granted stock options for the purchase of 937,247 shares of the Company’s Class A common stock with a weighted-average grant date fair value of $ 82.30 per share to certain employees of the Company. The stock options vest over three years at a rate of 1/12 per quarter. As of December 31, 2022, there was total unrecognized compensation cost of $ 130.2 million related to unvested stock options. These costs are expected to be recognized over a weighted-average period of approximately 2.3 years. The intrinsic value is calculated as the difference between the exercise price of the underlying stock option award and the estimated fair value of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2022 and 2021 was $ 336.3 million and $ 5.9 billion, respectively. 176 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements During the year ended December 31, 2022, 7,592,673 stock options vested with a weighted-average grant date fair value of $ 12.46 per share. During the year ended December 31, 2021, 14,966,504 stock options vested with a weighted-average grant date fair value of $ 8.74 per share. The assumptions used under the Black-Scholes-Merton Option-Pricing Model and the weighted average calculated value of the options granted to employees were as follows: Year Ended December 31, 2022 2021 Dividend yield 0.0 % 0.0 % Expected volatility 59.3 % 44.0 % Expected term (in years) 5.8 4.8 Risk-free interest rate 2.1 % 0.5 % Early exercise of stock options Stock options granted under the Plans provide employee option holders the right to exercise unvested options for restricted common stock, which is subject to a repurchase right held by the Company at the original purchase price in the event the optionee’s employment is terminated either voluntarily or involuntarily prior to vesting of the exercised stock. Early exercises of options are not deemed to be substantive exercises for accounting purposes and accordingly, amounts received for early exercises are recorded as a liability. These repurchase terms are considered to be a forfeiture provision and do not result in variable accounting. As of December 31, 2022 and 2021, there were 166,481 and 478,271 shares, respectively, subject to repurchase related to stock options early exercised and not yet vested, but that are expected to vest. These amounts are reclassified to common stock and additional paid in capital as the underlying shares vest. As of December 31, 2022 and 2021, the Company recorded a liability related to these shares subject to repurchase in the amount of $ 3.3 million and $ 8.9 million, respectively, which is included within accrued expenses and other current liabilities on the accompanying consolidated balance sheets. Chief Executive Officer performance award On August 11, 2020, the Company granted its Chief Executive Officer an option award to purchase up to 9,293,911 shares of the Company’s Class A common stock, at an exercise price of $ 23.46 per share. Vesting of the award is dependent on both performance-based and market-based conditions being met. The performance condition was contingent on the Company’s registration statement being declared effective by the SEC under the Securities Act. The occurrence of this event was considered to not be probable until such time that it occurred. The market condition is contingent on the Company’s Class A common stock price achieving stock price target milestones. The total grant date fair value of this award was $ 56.7 million. The Company determined the fair value of the option using a Monte Carlo Simulation Model (a binomial lattice-based valuation model). The Monte Carlo Simulation Model uses multiple input variables to determine the probability of satisfying the market condition requirements. The fair value of the option is not subject to change based on future market conditions. Once the performance condition becomes probable of being achieved, the fair value of the option is recognized as compensation expense over the requisite service period, using the accelerated attribution method regardless of whether, and the extent to which, the market condition is ultimately satisfied. During April 2021, as a result of the Company’s registration statement being declared effective by the SEC, the performance condition of the option award granted to the Chief Executive Officer was met. On July 8, 2021, the first price target of the award was met, resulting in the vesting of 3,159,930 shares subject to the option award. During the years ended December 31, 2022, 2021 and 2020, compensation expense of $ 3.9 million, $ 29.5 million and $ 0 was recognized related to this award, respectively. 177 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Restricted stock units The Company’s RSUs vest upon the satisfaction of a service-based condition. In general, the RSUs vest over a service period ranging from one to four years . Once vested, the RSUs are settled by delivery of the Company’s Class A common stock. Activity of RSUs outstanding are as follows (in thousands, except per share data): Number of Shares Weighted-Average Grant Date Fair Value per Share Balance at January 1, 2022 7,482 $ 157.22 Granted 11,867 112.35 Vested ( 12,107 ) 125.75 Forfeited and cancelled ( 1,913 ) 159.25 Balance at December 31, 2022 5,329 $ 127.85 For RSUs granted during the year ended December 31, 2022, the closing price of the Company’s Class A common stock as reported on The Nasdaq Global Select Market on the grant date was used as the fair value. In December 2022, the Company modified certain RSU awards held by 1,198 employees to accelerate vesting of the remaining unvested awards on December 21, 2022 instead of the original vest date of February 20, 2023. The modification of awards did not result in any incremental compensation cost, however $ 36.1 million of stock-based compensation expense was accelerated and recognized upon modification. As of December 31, 2022, there was total unrecognized compensation cost of $ 605.7 million related to unvested RSUs. These costs are expected to be recognized over a weighted-average period of approximately 2.0 years. Restricted common stock As part of the Company’s acquisitions, the Company has issued shares of restricted Class A common stock. Vesting of this restricted Class A common stock is dependent on a service-based vesting condition that is generally satisfied over three years . The Company has the right to repurchase shares at par value for which the vesting condition is not satisfied. Activity of shares of restricted Class A common stock is as follows (in thousands, except per share data): Number of Shares Weighted-Average Grant Date Fair Value per Share Balance at January 1, 2022 2,014 $ 137.57 Granted 323 137.05 Vested ( 1,051 ) 136.57 Forfeited and cancelled ( 11 ) 60.15 Balance at December 31, 2022 1,275 $ 139.72 As of December 31, 2022, there was total unrecognized compensation cost of $ 135.1 million related to unvested restricted Class A common stock. These costs are expected to be recognized over a weighted-average period of approximately 1.4 years. 178 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Employee Stock Purchase Plan In February 2021, the Board approved and adopted the ESPP. The ESPP became effective on April 1, 2021, the effective date of the Company’s registration statement for the Direct Listing. The ESPP allows eligible employees the option to purchase shares of the Company's Class A common stock at a 15 % discount, over a series of offering periods through accumulated payroll deductions over the period. The ESPP also includes a look-back provision for the purchase price if the stock price on the purchase date is lower than the stock price on the offering date. The Company recognizes stock-based compensation expenses related to purchase rights issued pursuant to its ESPP on a straight-line basis over the offering period, which is 24 months. The fair value of purchase rights under the ESPP is estimated on the date of grant using the Black-Scholes-Merton Option-Pricing Model. The number of shares available for grant and issuance under the ESPP will be automatically increased on January 1st of each of the first ten fiscal years during the term of the ESPP by the lesser of (a) one percent of the total number of shares of all classes of the Company’s common stock outstanding on an as converted to common stock basis on each December 31st immediately prior to the date of increase or (b) such number of shares determined by the Board or the compensation committee of the Board. The grant date of the initial offering period was May 3, 2021, and that offering period will end on April 30, 2023. Subsequent offering periods will commence in each May and November after the start of the initial offering period. For the year ended December 31, 2022, total compensation expense of $ 28.4 million was recognized related to the ESPP. As of December 31, 2022, the Company recorded a liability of $ 6.7 million related to the accumulated payroll deductions, which are refundable to employees who withdraw from the ESPP. This amount is included within accrued expenses and other current liabilities on the accompanying consolidated balance sheets. Stock-based compensation expense Stock-based compensation is included in the following components of expenses on the accompanying consolidated statements of operations (in thousands): Year Ended December 31, 2022 2021 2020 Technology and development $ 1,093,983 $ 571,861 $ 36,869 Sales and marketing 76,153 32,944 1,566 General and administrative 395,687 215,880 34,190 Total $ 1,565,823 $ 820,685 $ 72,625 During the years ended December 31, 2022, 2021 and 2020, $ 118.0 million, $ 3.5 million and $ 3.0 million of stock-based compensation expense was included in capitalized software, respectively. 19. INCOME TAXES The components of income (loss) before income taxes were attributable to the following regions (in thousands): Year Ended December 31, 2022 2021 2020 Domestic $ ( 3,071,951 ) $ 2,977,406 $ 396,709 Foreign 7,369 49,541 12,490 $ ( 3,064,582 ) $ 3,026,947 $ 409,199 179 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements (Benefit from) provision for income taxes consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Current Federal $ 1,654 $ ( 51,942 ) $ 65,269 State 3,985 4,456 18,162 Foreign 22,763 8,642 2,977 Total current 28,402 ( 38,844 ) 86,408 Deferred Federal ( 361,056 ) ( 438,810 ) 1,373 State ( 126,713 ) ( 93,959 ) ( 514 ) Foreign 19,734 ( 25,560 ) ( 385 ) Total deferred ( 468,035 ) ( 558,329 ) 474 Total (benefit from) provision for income taxes $ ( 439,633 ) $ ( 597,173 ) $ 86,882 The effective income tax rate differs from the statutory federal income tax rate as follows: Year Ended December 31, 2022 2021 2020 Provision for income taxes at U.S. statutory rate 21.00 % 21.00 % 21.00 % State income taxes, net of federal benefit 5.04 ( 4.67 ) 3.39 Foreign rate differential ( 0.02 ) ( 1.09 ) ( 0.24 ) Non-deductible compensation ( 1.34 ) 0.83 0.99 Equity compensation ( 3.43 ) ( 31.95 ) 0.27 Adjustment to prior year provision ( 0.23 ) 0.14 ( 0.11 ) Research and development credits 1.40 ( 9.60 ) ( 1.86 ) Change in valuation allowance ( 6.37 ) 1.65 — Foreign tax credit — — ( 0.05 ) Subpart F income — — 0.09 Foreign Derived Intangible Income (“FDII”) — — ( 1.50 ) Global Intangible Low Taxed Income (“GILTI”) ( 0.94 ) — 0.06 Uncertain tax positions ( 0.60 ) 3.07 0.46 CARES Act - NOL Carryback — — ( 1.20 ) Other ( 0.16 ) 0.89 ( 0.07 ) 14.35 % ( 19.73 ) % 21.23 % The Company’s effective tax rate of 14.35 % for 2022 reflects a tax benefit on pretax loss reduced by certain nondeductible compensation and a valuation allowance recorded on impairment charges. The Company’s effective tax rate of ( 19.73 )% for 2021 reflects a tax benefit on pretax income due primarily to deductible stock option exercises as a result of the Company’s Direct Listing, and research and development credits. The Company’s effective tax rate for 2021 was significantly lower compared to 2020 due primarily to an increase in 2021 tax benefits from deductible stock options as a result of the Company’s Direct Listing, and an increase in 2021 research and development credits. 180 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities consisted of the following (in thousands): December 31, 2022 2021 Deferred tax assets Safeguarded crypto liabilities $ 19,086,117 $ — Accruals and reserves 6,248 19,184 Net operating loss carryforward 396,613 262,574 Lease liability 19,967 26,338 Tax credit carryforward 301,862 285,029 Stock-based compensation 24,527 50,292 Intangibles 27,022 7,339 Capitalized expenses 415,981 — Capital losses - realized / unrealized 225,211 37,932 Gross deferred tax assets 20,503,548 688,688 Less valuation allowance ( 252,258 ) ( 54,383 ) Total deferred tax assets 20,251,290 634,305 Deferred tax liabilities Safeguarded crypto assets ( 19,086,117 ) — State taxes ( 23,212 ) ( 973 ) Depreciation and amortization ( 35,893 ) ( 15,937 ) Prepaid expenses ( 5,938 ) ( 3,439 ) Right of use asset ( 18,246 ) ( 24,347 ) Installment gain ( 13,443 ) ( 15,859 ) Other ( 21,650 ) ( 203 ) Total deferred tax liabilities ( 19,204,499 ) ( 60,758 ) Total net deferred tax assets $ 1,046,791 $ 573,547 As of December 31, 2022, the Company had $ 1.0 billion in net deferred tax assets. At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets. On the basis of this evaluation, only the portion of the deferred tax asset that is more likely than not to be realized was recognized. However, if the Company is not able to generate sufficient taxable income from its operations in the future, then a valuation allowance to reduce the Company’s U.S. deferred tax assets may be required, which would increase the Company’s expenses in the period the allowance is recognized. A valuation allowance of $ 252.3 million and $ 54.4 million was recorded against the Company’s net deferred tax asset balance as of December 31, 2022 and 2021, respectively. The valuation allowance as of December 31, 2022 includes allowances primarily related to realized and unrealized capital losses on digital assets and Coinbase Ventures investments, and California research and development credits. 181 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements In accordance with the Company’s adoption of SAB 121, a deferred tax asset and deferred tax liability are being disclosed relating to safeguarded customer crypto assets and liabilities. A deferred tax asset is reported on the safeguarded liability, and an offsetting deferred tax liability, measured at the same amount, is reported on the safeguarded assets. As of December 31, 2022, the Company had U.S. federal net operating loss carryforwards of $ 1.3 billion, and as of December 31, 2021 the Company estimated a U.S. federal net operating loss carryforwards of $ 873.6 million. On the Company’s 2021 tax return, the Company elected to capitalize expenses which replaced the estimated 2021 net operating loss carryforward into 2022. The U.S. federal net operating losses carry forward indefinitely. Additionally, the Company had U.S. state net operating losses of $ 1.4 billion as of December 31, 2022. Generally, California and other significant U.S. states have a twenty-year carryforward for net operating losses. Activity related to the Company’s unrecognized tax benefits consisted of the following (in thousands): Year Ended December 31, 2022 2021 2020 Balance, beginning of year $ 111,019 $ 12,807 $ 10,344 Settlements ( 6,128 ) — — Increase related to tax positions taken during a prior year 13,940 — 212 Decreases related to tax positions taken during a prior year ( 9,187 ) — ( 882 ) Increases related to tax positions taken during the current year 14,462 98,212 3,133 Balance, end of year $ 124,106 $ 111,019 $ 12,807 As of December 31, 2022 and 2021, the Company had $ 124.1 million and $ 111.0 million, respectively, of unrecognized tax benefits, of which $ 114.4 million and $ 84.9 million, respectively, would reduce income tax expense and affect the effective tax rate, if recognized. It is reasonably possible that the balance of unrecognized tax benefits could decrease within the next twelve months as a result of audit closures. The potential reduction in unrecognized tax benefits is $ 2.2 million, of which $ 1.8 million would favorably impact the Company’s effective tax rate. The Company accounts for interest and penalties related to exposures as a component of income tax expense. The Company recorded $ 0.5 million and $ 0.3 million of accrued interest and penalties, respectively, as of December 31, 2022 and $ 0.6 million and $ 0.4 million of accrued interest and penalties, respectively, as of December 31, 2021. The Company files U.S. federal, state, and foreign income tax returns in jurisdictions with varying statutes of limitations. Currently these statutes of limitations are open from 2020 forward for the U.S., 2018 forward for California, 2021 forward for the United Kingdom, and 2018 forward for Ireland. During 2022, the IRS completed the audit of the Company’s U.S. federal income tax returns for years 2017 to 2019, and the state of California completed the audit of the Company’s income tax returns for 2016 to 2017. 182 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements 20. NET (LOSS) INCOME PER SHARE The computation of net (loss) income per share is as follows (in thousands, except per share amounts): Year Ended December 31, 2022 2021 2020 Basic net (loss) income per share: Numerator Net (loss) income $ ( 2,624,949 ) $ 3,624,120 $ 322,317 Less: Income allocated to participating securities — ( 527,162 ) ( 214,061 ) Net (loss) income attributable to common stockholders, basic $ ( 2,624,949 ) $ 3,096,958 $ 108,256 Denominator Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders, basic 222,314 177,319 68,671 Net (loss) income per share attributable to common stockholders, basic $ ( 11.81 ) $ 17.47 $ 1.58 Diluted net (loss) income per share: Numerator Net (loss) income $ ( 2,624,949 ) $ 3,624,120 $ 322,317 Less: Income allocated to participating securities — ( 439,229 ) ( 194,846 ) Add: Interest on convertible notes, net of tax — 6,208 — Less: Fair value gain on contingent consideration arrangement, net of tax ( 6,230 ) ( 695 ) — Net (loss) income attributable to common stockholders, diluted $ ( 2,631,179 ) $ 3,190,404 $ 127,471 Denominator Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders, basic 222,314 177,319 68,671 Weighted-average effect of potentially dilutive securities: Stock options — 36,396 22,146 RSUs — 3,773 — Restricted common stock — 9 — Warrants — 72 392 Convertible notes — 2,388 — Contingent consideration 24 8 — Weighted-average shares of common stock used to compute net (loss) income per share attributable to common stockholders, diluted 222,338 219,965 91,209 Net (loss) income per share attributable to common stockholders, diluted $ ( 11.83 ) $ 14.50 $ 1.40 183 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Certain shares of the Company’s restricted Class A common stock granted as consideration in acquisitions and the Company’s convertible preferred stock outstanding during 2021 are participating securities. These participating securities do not contractually require the holders of such shares to participate in the Company’s losses. The rights, including the liquidation and dividend rights, of the holders of Class A common stock and Class B common stock are identical, except with respect to voting. As a result, th e undistributed earnings are allocated on a proportionate basis and the resulting income (loss) per share will, therefore, be the same for both Class A common stock and Class B common stock on an individual or combined basis. The following potentially dilutive shares were not included in the calculation of diluted shares outstanding as the effect would have been anti-dilutive (in thousands): Year Ended December 31, 2022 2021 2020 Stock options 31,795 6,134 12,831 RSUs 5,329 151 3,766 Convertible notes 3,880 — — Restricted common stock 1,602 5 — ESPP 1,945 295 — Total 44,551 6,585 16,597 21. COMMITMENTS AND CONTINGENCIES Indemnifications In the event any registrable securities are included in a registration statement, the Company’s Amended and Restated Investors’ Rights Agreement (the “IRA”) entered into with certain of the Company’s stockholders provides indemnity to each stockholder, their partners, members, officers, directors, and stockholders, legal counsel, and accountants; each underwriter, if any; and each person who controls each stockholder or underwriter, against any damages incurred in connection with investigating or defending any claim or proceeding arising as a result of such registration from which damages may result. The Company will reimburse each such party for any legal and any other expenses reasonably incurred, provided that the Company will not be liable in any such case to the extent the damages arise out of or are based upon any actions or omissions made in reliance upon and in conformity with written information furnished by or on behalf of such stockholder or underwriter and stated to be specifically for use therein. The Company also has indemnity agreements with certain officers and directors of the Company pursuant to which the Company must indemnify the officer or director against all expenses, judgments, fines, and amounts paid in settlement reasonably incurred in connection with a third party proceeding, if the indemnitee acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the Company, and in the case of a criminal proceeding, had no reasonable cause to believe the indemnitee’s conduct was unlawful. It is not possible to determine the maximum potential exposure under these indemnification agreements: (i) because the facts and circumstances involved in each claim are unique and the Company cannot predict the number or nature of claims that may be made; (ii) due to the unique facts and circumstances involved in each particular agreement; and (iii) due to the requirement for a registration of the Company’s securities before any of the indemnification obligations contemplated in the IRA become effective. The Company has also provided indemnities or similar commitments on standard commercial terms in the ordinary course of business. 184 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements Legal and regulatory proceedings The Company is subject to various litigation, regulatory investigations, and other legal proceedings that arise in the ordinary course of its business. The Company is also subject to regulatory oversight by numerous regulatory and other governmental agencies. The Company reviews its lawsuits, regulatory investigations, and other legal proceedings on an ongoing basis and provides disclosure and records loss contingencies in accordance with the loss contingencies accounting guidance. In accordance with such guidance, the Company establishes accruals for such matters when potential losses become probable and can be reasonably estimated. If the Company determines that a loss is reasonably possible and the loss or range of loss can be estimated, the Company discloses the possible loss in the consolidated financial statements. In July and August 2021, three purported securities class actions were filed in the U.S. District Court for the Northern District of California against the Company, its directors, certain of its officers and employees, and certain venture capital and investment firms. The complaints alleged violations of Sections 11, 12(a)(2) and 15 of the Securities Act, in connection with the registration statement and prospectus filed in connection with the Direct Listing. In November 2021, these actions were consolidated and recaptioned as In re Coinbase Global Securities Litigation , and an amended complaint was filed. The plaintiff seeks, among other relief, unspecified compensatory damages, attorneys’ fees, and costs. The Company disputes the claims in these cases and is vigorously defending against them. Based on the preliminary nature of the proceedings in these cases, the outcome of these matters remain uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time. The Company has subsequently received, and expects to receive in the future, similar shareholder claims. In October 2021, a purported class action captioned Underwood et al. v. Coinbase Global, Inc. , was filed in the U.S. District Court for the Southern District of New York against the Company alleging claims under Sections 5, 15(a)(1) and 29(b) of the Exchange Act and violations of certain California and Florida state statutes. On March 11, 2022, plaintiffs filed an amended complaint adding Coinbase, Inc. and Brian Armstrong as defendants and adding causes of action. Among other relief requested, the plaintiffs sought injunctive relief, unspecified damages, attorneys’ fees and costs. On February 1, 2023, the court dismissed all federal claims (with prejudice) and state law claims (without prejudice) against Coinbase Global, Inc., Coinbase, Inc. and Brian Armstrong. Subsequently, on February 9, 2023, the plaintiffs filed a notice of appeal of the District Court’s ruling. The Company and other defendants continue to dispute the claims in this case and intend to vigorously defend against them. Based on the nature of the proceedings in this case, the outcome of this matter remains uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time. In December 2021, a shareholder derivative suit captioned Shin v. Coinbase Global, Inc. , was filed in New York state court against the Company and its directors, alleging breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement, and waste of corporate assets, and seeking unspecified damages and injunctive relief. The Company has subsequently received, and expects to receive in the future, similar derivative claims. The Company disputes the claims in these cases and intends to vigorously defend against them. Based on the preliminary nature of the proceedings in these cases, the outcome of these matters remain uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time. 185 Table of Contents Coinbase Global, Inc. Notes to Consolidated Financial Statements During 2022, the Company’s subsidiary, Coinbase, Inc., which holds a BitLicense from the New York Department of Financial Services (“NYDFS”) and is therefore subject to examinations and investigations by the NYDFS, was subject to an investigation by the NYDFS relating to its compliance program including compliance with the Bank Secrecy Act and sanctions laws, cybersecurity, and customer support. In January 2023, the NYDFS announced a consent order focused on historical shortcomings in Coinbase, Inc.'s compliance program. Pursuant to the consent order, Coinbase, Inc. has paid a $ 50 million penalty in January 2023 and agreed to invest an additional $ 50 million in its compliance function by the end of 2024. The $ 50 million penalty was included in general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2022, and in accrued expenses and other current liabilities in the consolidated balance sheets as of December 31, 2022. The Company has received investigative subpoenas and requests from the SEC for documents and information about certain customer programs, operations, and existing and intended future products, including the Company’s processes for listing assets, the classification of certain listed assets, its staking programs, and its stablecoin and yield-generating products. Based on the ongoing nature of these matters, the outcomes remain uncertain and the Company cannot estimate the potential impact, if any, on its business or financial statements at this time. The Company believes the ultimate resolution of existing legal and regulatory investigation matters will not have a material adverse effect on the financial condition, results of operations, or cash flows of the Company. However, in light of the uncertainties inherent in these matters, it is possible that the ultimate resolution of one or more of these matters may have a material adverse effect on the Company’s results of operations for a particular period, and future changes in circumstances or additional information could result in additional accruals or resolution in excess of established accruals, which could adversely affect the Company’s results of operations, potentially materially. Tax regulation Current promulgated tax rules related to crypto assets are unclear and require significant judgments to be made in interpretation of the law, including but not limited to the areas of income tax, information reporting, transaction level taxes and the withholding of tax at source. Additional legislation or guidance may be issued by U.S. and non-U.S. governing bodies that may differ significantly from the Company's practices or interpretation of the law, which could have unforeseen effects on the Company’s financial condition and results of operations, and accordingly, the related impact on the Company’s financial condition and results of operations is not estimable. 22. SUBSEQUENT EVENTS Reduction in force On January 10, 2023, the Company announced a further restructuring plan (the "Restructuring Plan") to manage its operating expenses in response to the ongoing market conditions impacting the cryptoeconomy and ongoing business prioritization efforts. The Restructuring Plan involves a reduction of the Company's workforce by approximately 950 employees. The Company expects execution of the Restructuring Plan to be substantially complete by the second quarter of 2023. In connection with these actions, the Company estimates that it will incur approximately $ 149 million to $ 163 million in total restructuring expenses, consisting of approximately $ 58 million to $ 68 million in cash charges related to employee severance and other termination benefits. Of the aggregate charges that the Company expects to incur in connection with the Restructuring Plan, the Company expects that approximately $ 91 million to $ 95 million will be in stock-based compensation expenditures relating to the acceleration of the vesting of outstanding equity awards in accordance with the terms of such awards. The Company expects to recognize substantially all of these charges in the first quarter of 2023. 186 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. None.