Coinbase Global, Inc. 10-K

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Consolidated Financial Statements and the accompanying notes thereto included elsewhere in this Annual Report on Form 10-K. Th e following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, those identified below and those discussed in the section titled Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K . Unless otherwise expressly stated or the context otherwise requires, references to “we,” “our,” “us,” “the Company,” and “Coinbase” refer to Coinbase Global, Inc. and its c onsolidated subsidiaries. For all narrative provided in this Item 7, two numbers presented consecutively represent figures for the year ended December 31, 2024 as compared to the year ended December 31, 2023, respectively, unless otherwise noted. Management’s Discussion and Analysis of Financial Condition and Results of Operations for the year ended December 31, 2023 as compared to the year ended December 31, 2022 can be found in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2023, as filed with the Securities and Exchange Commission on February 15, 2024, which is incorporated by reference herein. 89 Table of Contents Executive Overview This executive overview of Management’s Discussion and Analysis of Financial Condition and Results of Operations highlights selected information and does not contain all of the information that is important to readers of this Annual Report on Form 10-K. During 2024, we made progress against our goals of driving revenue growth, crypto utility, and regulatory clarity. We advanced the crypto economy by deepening institutional adoption, scaling international growth, and expanding real-world utility. Our investments in core products like derivatives and Coinbase One, as well as our focus on global expansion drove revenue growth, while innovations such as USDC rewards showcased the power of onchain finance. For the year ended December 31, 2024, our net revenue was $6.3 billion, including $4.0 billion in transaction revenue and $2.3 billion in subscription and services revenue. For the year ended December 31, 2023, our net revenue was $2.9 billion, including $1.5 billion in transaction revenue and $1.4 billion in subscription and services revenue. For the year ended December 31, 2024, our net income was $2.6 billion and Adjusted EBITDA was $3.3 billion. For the year ended December 31, 2023, our net income was $0.1 billion and Adjusted EBITDA was $1.0 billion. For 2025, we believe that we are well-positioned to drive revenue growth across all macroeconomic environments, and we remain committed to advancing regulatory clarity. Despite multiple Federal Funds Rate decreases in late 2024, future interest rate decreases are not certain. If they continue, they may materially impact our subscription and services and other revenue. We plan to dynamically adjust our expense base in order to be responsive to market conditions and revenue opportunities, increasing or decreasing it as needed, especially with respect to certain variable expenses. In the first quarter of 2025, we expect technology and development and general and administrative expenses to grow modestly as compared to the fourth quarter of 2024, primarily due to headcount growth and variable infrastructure and customer support expenses. Additionally, we expect sales and marketing expenses to grow, as compared to the fourth quarter of 2024, primarily due to expected higher USDC rewards expense and variable non-brand marketing spend. Key Business Metrics In addition to the measures presented in our Consolidated Financial Statements, we use the key business metrics listed below to evaluate our business, measure our performance, identify trends affecting our business, and make strategic decisions: Year Ended December 31, 2024 2023 % MTUs (1) (in millions) 8.4 7.4 14 Assets on Platform (2) (in billions) $ 404 $ 191 112 Trading Volume (in billions) $ 1,162 $ 468 148 Net income (in millions) $ 2,579 $ 95 nm Adjusted EBITDA (3) (in millions) $ 3,348 $ 978 242 _____________ nm - not meaningful (1) Represents the annual average MTUs, calculated as the average of quarterly MTUs, which are derived from the average of each month’s MTUs in each respective quarter. Quarterly MTUs for the fourth quarter of 2024 and 2023, were 9.7 million and 7.0 million, respectively. (2) Represents Assets on Platform at December 31. (3) In the first quarter of 2024, we revised our definition of Adjusted EBITDA and recast the prior period for comparability . S ee the section titled “ Non-GAAP Financial Measure ” below for a reconciliation of net income to Adjusted EBITDA and an explanation for why we consider Adjusted EBITDA to be a helpful metric for investors. 90 Table of Contents Monthly Transacting Users We define a Monthly Transacting User (“MTU”) as a consumer who actively or passively transacts in one or more products on our platform at least once during the rolling 28-day period ending on the date of measurement. MTUs engage in transactions that generate both transaction revenue and subscription and services revenue. Revenue-generating transactions include active transactions, such as buying or selling crypto assets or passive transactions such as earning staking rewards and USDC rewards. MTUs also engage in transactions that are non-revenue generating, such as consumers sending and receiving crypto assets between wallets and off-platform accounts on a non-expedited basis. MTUs may overstate the number of unique consumers due to differences in product architecture or user behavior. MTUs increased for the year ended December 31, 2024 as compared to 2023, primarily due to a 1.3 million increase in trading users, influenced by overall crypto market sentiment and activity and higher average crypto asset prices. Additionally, we saw growth in users participating in our USDC rewards programs, offset in part by a decrease in staking only users as a result of updates we made to our staking service. Assets on Platform As a result of our decision to adopt SAB 122 as of December 31, 2024 on a retrospective basis, we will include an Assets on Platform (“AOP”) key business metric going forward to expand upon the details of the assets we are obligated to securely store. We define AOP as the total United States (“U.S.”) dollar equivalent value of USDC and crypto assets held or managed on behalf of customers in digital wallets on our platform, including our custody services but excluding assets for which the customer holds full or partial keys, calculated based on the market price on the date of measurement. Prior to SAB 122 adoption, SAB 121 safeguarding amounts included assets for which customers held full or partial keys. As customers are in control of those assets, we exclude them from our definition of AOP. AOP demonstrates the scale of balances held across our suite of products and services, the trust customers place in us to securely store their assets, and the underlying growth of the cryptoeconomy. AOP also represents our monetization opportunity for subscription products and services, including from the adoption and use of USDC, staking, custody, Prime Financing, and Coinbase One. AOP generate fees that are recorded as subscription and services revenue when customers engage with these products and services. For additional information on the adoption of SAB 122, see Note 2. Summary of Significant Accounting Policies—Change in accounting principle , of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K. The following table sets forth the value of AOP by asset (in thousands, except percentages): December 31, Change 2024 2023 % Bitcoin $ 235,377,653 $ 89,864,637 162 % Ethereum 54,209,118 39,762,180 36 % Solana 21,297,761 12,906,278 65 % Other crypto assets (1) 87,058,643 46,303,676 88 % USDC 6,091,015 2,367,276 157 % Total $ 404,034,190 $ 191,204,047 111 % __________________ (1) Includes various other crypto asset balances, none of which individually represented more than 5% of total AOP. 91 Table of Contents AOP at December 31, 2024 increased as compared to December 31, 2023, primarily due to an increase in crypto asset prices, driven by broader crypto market sentiment and activity. Additionally, the growth in USDC balances is primarily attributable to the USDC rewards program, combined with deeper integration of USDC across our products. Trading Volume We define Trading Volume as the total U.S. dollar equivalent value of spot matched trades transacted between a buyer and seller through our platform during the period of measurement. Trading Volume does not include derivatives volume on our platform or trades executed on third-party venues. Trading Volume represents the product of the quantity of assets transacted and the trade price at the time the transaction was executed. As trading activity directly impacts transaction revenue, we believe this measure is a reflection of liquidity on our order books, trading health, and the underlying growth of the cryptoeconomy. Institutional customers incur lower fees per transaction than consumer customers and, as a result, the impact of changes in consumer Trading Volume on transaction revenue is more pronounced than the impact of changes in institutional Trading Volume. Generally, Trading Volume on our platform is primarily influenced by overall market dynamics, namely the price of crypto assets, crypto asset volatility, and macroeconomic conditions, and by our share of total crypto market spot trading volume. In periods of high crypto asset prices and crypto asset volatility, we have experienced correspondingly high levels of Trading Volume on our platform. Year Ended December 31, Change 2024 2023 % Trading Volume (in billions) Consumer $ 221 $ 75 195 Institutional 941 393 139 Total Trading Volume $ 1,162 $ 468 148 Trading Volume by crypto asset Bitcoin 32 % 34 % (6) Ethereum 12 20 (40) USDT (1) 13 11 18 Other crypto assets (2) 43 35 23 Total 100% 100% ____________________________________ (1) USDT is a stablecoin issued by Tether Operations Limited. (2) No crypto assets other than those shown in this table individually represented more than 10% of our Trading Volume. For the year ended December 31, 2024 as compared to 2023, Trading Volume increased reflecting an increase in both the total market and our market share in the U.S., where our business is concentrated: • Total market — Crypto Asset Volatility 1 increased 37% and average total crypto market capitalization increased 103%. These two macro inputs have historically been highly correlated with Trading Volume and are typically influenced by overall crypto market sentiment, activity in the crypto market, and changes in average crypto asset prices; and • Market share — Trading Volume growth outpaced the 105% growth in overall U.S. spot market trading volume, as we were able to capture a larger portion of the trading activity due to our competitive position and product strategy. 1 Crypto Asset Volatility represents our internal measure of crypto asset volatility in the market relative to prior periods. The volatility is based on intraday returns of a volume-weighted basket of all assets listed on our trading platform. These returns are used to compute the basket’s intraday volatility which is then scaled to a daily window. These daily volatility values are then averaged over the applicable time period as needed. 92 Table of Contents Results of Operations The following table presents the Consolidated Statements of Operations (in thousands), as well as each component as a percentage of total revenue: Year Ended December 31, 2024 2023 $ % (1) $ % (1) Revenue: Net revenue $ 6,293,246 96 $ 2,926,540 94 Other revenue 270,782 4 181,843 6 Total revenue 6,564,028 100 3,108,383 100 Operating expenses: Transaction expense 897,707 14 420,705 14 Technology and development 1,468,252 22 1,324,541 43 Sales and marketing 654,444 10 332,312 11 General and administrative 1,300,257 20 1,074,308 35 Gains on crypto assets held for operations, net (71,725) (1) — — Crypto asset impairment, net — — (34,675) (1) Restructuring — — 142,594 5 Other operating expense, net 7,933 — 10,260 — Total operating expenses 4,256,868 65 3,270,045 105 Operating income (loss) 2,307,160 35 (161,662) (5) Interest expense 80,645 1 82,766 3 Gains on crypto assets held for investment, net (687,055) (10) — — Other income, net (29,074) — (167,583) (5) Income (loss) before income taxes 2,942,644 45 (76,845) (2) Provision for (benefit from) income taxes 363,578 6 (171,716) (6) Net income $ 2,579,066 39 $ 94,871 3 __________________ (1) Figures presented above may not sum precisely due to rounding. For information on what is included in each of the line items in our Consolidated Statements of Operations, including the associated business drivers and accounting, please see Part I, Item 1. Business and Note 2. Summary of Significant Accounting Policies of the Notes to our Consolidated Financial Statements in Part II, Item 8. of this Annual Report on Form 10-K, and management’s discussion of the results of operations below. Comparison of the years ended December 31, 2024 and 2023 Revenue For the years ended December 31, 2024 and 2023 we generated 83% and 88%, respectively, of total revenue in the U.S. No other country accounted for more than 10% of total revenue during the years presented. International revenue comprised mainly transaction revenue in both years presented. 93 Table of Contents Transaction revenue Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Consumer, net (1) $ 3,430,322 $ 1,334,018 $ 2,096,304 157 Institutional, net 345,598 90,164 255,434 283 Other transaction revenue, net (1) 210,193 95,472 114,721 120 Total transaction revenue $ 3,986,113 $ 1,519,654 $ 2,466,459 162 __________________ (1) Prior period amounts were reclassified to conform to current period presentation. See Note 3. Revenue of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details. Transaction revenue increased for the year ended December 31, 2024 as compared to 2023, due to: • an increase in consumer transaction revenue of $2.6 billion due to a 195% increase in consumer Trading Volume. This increase was offset in part by a decrease of $482.5 million attributed to a lower average blended fee rate, primarily due to changes in the mix of Trading Volume from Simple to Advanced trading; • an increase in institutional transaction revenue of $139.1 million primarily due to a 139% increase in institutional Trading Volume, as well as growth in revenue from derivatives trading on our international exchange, which was launched in the second quarter of 2023; and • an increase in other transaction revenue of $77.8 million from transactions on Base, which was launched in the third quarter of 2023, as well as higher revenue from instant transfer withdrawals. The percentage of transaction revenue from trading on our platform broken down by crypto asset was as follows: Year Ended December 31, Change 2024 2023 % Bitcoin 30 % 35 % (14) Ethereum 13 17 (24) Other crypto assets (1) 57 48 19 Total 100 % 100 % ____________________________________ (1) No other crypto asset individually represented more than 10% of the total. Subscription and services revenue Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Stablecoin revenue $ 910,464 $ 694,247 $ 216,217 31 Blockchain rewards 705,757 330,885 374,872 113 Interest and finance fee income (1) 265,799 186,685 79,114 42 Custodial fee revenue 141,706 69,501 72,205 104 Other subscription and services revenue (1) 283,407 125,568 157,839 126 Total subscription and services revenue $ 2,307,133 $ 1,406,886 $ 900,247 64 __________________ (1) Prior period amounts were reclassified to conform to current period presentation. See Note 3. Revenue of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details. 94 Table of Contents Subscription and services revenue increased for the year ended December 31, 2024 as compared to 2023, due to: • an increase in stablecoin revenue of $138.3 million primarily due to higher average customer USDC assets on platform and corporate balances, and $104.7 million attributable to an increase in overall USDC market capitalization, partially offset by increased expenses that are deducted prior to allocation of income from the arrangement with Circle; • an increase of $350.5 million in blockchain rewards primarily due to higher average prices for Solana and Ethereum, as well as higher native units staked driving growth in both U.S. and international revenue, partially offset by a $62.3 million decrease attributable to changes in reward rates, primarily for Ethereum and Solana; • an increase in interest and finance fee income primarily reflecting growth of $43.8 million in finance fees driven by higher average volumes of Prime Financing loan receivables, and growth of $25.0 million in interest income attributable to higher average customer custodial cash and cash equivalents balances; • an increase in custodial fee revenue reflecting growth in average crypto assets and USDC under custody of $81.5 billion primarily driven by higher crypto asset prices, mainly Bitcoin, Solana, and Ethereum; and • an increase in other subscription and services revenue primarily due to growth of $87.9 million in Coinbase One revenue, as the number of paid subscribers grew driven by positive market conditions and improvements to our product offerings, and an increase in revenue from expanding supported assets on our developer products. Other revenue Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Corporate interest and other income $ 270,782 $ 181,843 $ 88,939 49 Total other revenue $ 270,782 $ 181,843 $ 88,939 49 Other revenue increased for the year ended December 31, 2024 as compared to 2023, primarily due to higher average cash and cash equivalents balances. Operating expenses Certain prior period amounts have been reclassified to conform to current period presentation. Transaction expense Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Blockchain rewards fees $ 455,946 $ 229,851 $ 226,095 98 Payment processing and account verification 150,897 76,795 74,102 96 Transaction rebates and commissions 122,372 6,876 115,496 nm Transaction reversal losses 79,639 51,501 28,138 55 Blockchain transaction fees 80,926 55,467 25,459 46 Other 7,927 215 7,712 nm Total transaction expense $ 897,707 $ 420,705 $ 477,002 113 __________________ nm - not meaningful 95 Table of Contents Transaction expense increased for the year ended December 31, 2024 as compared to 2023, due to: • higher blockchain rewards fees, which rose generally in line with blockchain rewards revenue; • an increase in payment processing fees of $56.4 million, reflecting Trading Volume growth of 148%, offset in part by savings from reduced fees at higher volumes; and • higher transaction rebates and commissions, driven primarily by rebates earned by institutional customers providing liquidity on our international exchange, driven by growth in volume. There were no material changes to note within transaction reversal losses, blockchain transaction fees, or other. Transaction expense as a percentage of total revenue will vary depending on the composition of the Company’s total revenue, as certain revenue streams incur little or no transaction costs while others have associated expenses. For example, if interest income and stablecoin revenue increase as a percentage of total revenue, transaction expenses as a percentage of total revenue will decrease as there are no transaction expenses directly attributed to these revenues. Conversely, if blockchain rewards increase as a percentage of total revenue, transaction expenses as a percentage of total revenue will increase since the majority of blockchain rewards revenue is distributed to the customer. There was no change in overall transaction expense as a percentage of total revenue when comparing the periods presented. Technology and development Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Personnel-related $ 1,038,154 $ 936,881 $ 101,273 11 Website hosting and infrastructure 228,392 192,009 36,383 19 Amortization, depreciation, and impairment 122,595 131,611 (9,016) (7) Other 79,111 64,040 15,071 24 Total technology and development $ 1,468,252 $ 1,324,541 $ 143,711 11 Technology and development expenses increased for the year ended December 31, 2024 as compared to 2023, due to: • an increase in personnel-related expenses primarily reflecting higher stock-based compensation expense of $104.1 million as a result of the 2023 annual employee equity awards being granted at a lower stock price as compared to the 2024 annual employee equity awards, offset in part by the roll-off of non-recurring multi-year stock-based compensation awards. Further, personnel-related expenses increased $42.6 million due to higher average headcount; and • higher website hosting and infrastructure expenses driven by increased activity on our platform. There were no material changes to note within amortization, depreciation, and impairment or other. Sales and marketing Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Marketing programs $ 247,087 $ 134,018 $ 113,069 84 USDC rewards 224,255 34,944 189,311 542 Personnel-related 151,054 143,762 7,292 5 Other 32,048 19,588 12,460 64 Total sales and marketing $ 654,444 $ 332,312 $ 322,132 97 96 Table of Contents Sales and marketing expenses increased for the year ended December 31, 2024 as compared to 2023, due to: • an increase in marketing programs expenses primarily due to $75.4 million higher digital advertising spend, and an increase in customer referral and other promotional initiatives; and • an increase in USDC rewards payouts of $112.4 million due to higher reward rates offered to customers in an effort to enhance customer acquisition, retention, and platform engagement, with the remainder primarily due to growth in average customer USDC assets on platform. There were no material changes to note within personnel-related or other. General and administrative Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Personnel-related $ 608,786 $ 571,083 $ 37,703 7 Professional services 202,956 182,908 20,048 11 Customer support (1) 124,940 48,804 76,136 156 Other 363,575 271,513 92,062 34 Total general and administrative $ 1,300,257 $ 1,074,308 $ 225,949 21 __________________ (1) Excludes personnel-related and professional services expenses. General and administrative expenses increased for the year ended December 31, 2024 as compared to 2023, due to: • an increase in personnel-related expenses largely driven by increased stock-based compensation expense as a result of the 2023 annual employee equity awards being granted at a lower stock price as compared to the 2024 annual employee equity rewards; • higher professional services expenses driven by an increase of $30.0 million in legal advisory services, offset in part by lower business consulting expenses; • an increase in customer support costs as a result of increased capacity needs. Our capacity needs typically increase in periods following higher Trading Volumes; and • an increase in other, largely reflecting: ▪ an additional $33.3 million in policy spend as we increased our crypto advocacy efforts; ▪ an increase of $31.0 million in taxes, licenses, and fees primarily due to higher indirect taxes directly associated with the growth in revenue and the application of certain indirect tax rules; ▪ an increase in legal costs of $23.4 million due to higher spend; offset in part by ▪ lower lease costs, as we recognized a one-time lease termination fee of $25.0 million during the year ended December 31, 2023 related to the closure of our San Francisco office space. ▪ The remaining variance in other was due to increases across various expenses, with no material changes to note. 97 Table of Contents Gains on crypto assets held for operations, net Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Gains on crypto assets held for operations, net $ (71,725) $ — $ (71,725) nm _____________ nm - not meaningful Gains on crypto assets held for operations, net during the year ended December 31, 2024 resulted primarily from flows of crypto assets held for operations during a period of rising crypto asset prices. Though gross inflows and outflows of these assets were each $1.5 billion in 2024, gains on changes in the fair value of the assets were limited as these assets are converted to cash or used for expenses nearly immediately after receipt. Crypto asset impairment, net During the year ended December 31, 2023, crypto asset impairment, net reflected a $34.7 million expense, driven by gross crypto asset impairments resulting from challenging crypto market conditions, followed by expense recoveries as we sold previously impaired assets at recovered prices. Beginning January 2024, we adopted ASU 2023-08, and as a result no longer record crypto asset impairments. Restructuring Restructuring expense was $142.6 million for the year ended December 31, 2023, comprising separation pay, stock-based compensation expense, and other personnel costs related to the workforce reduction in January 2023. There were no restructuring expenses for the year ended December 31, 2024. Other operating expense, net Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Platform-related incidents $ 28,070 $ 15,717 $ 12,353 79 Other (20,137) (5,457) (14,680) 269 Total other operating expense, net $ 7,933 $ 10,260 $ (2,327) (23) There were no material changes to note within Other operating expense, net. Interest expense Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Interest expense $ 80,645 $ 82,766 $ (2,121) (3) There were no material changes to note within Interest expense. Gains on crypto assets held for investment, net Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Gains on crypto assets held for investment, net $ (687,055) $ — $ (687,055) nm __________________ nm - not meaningful Gains on crypto assets held for investment, net during the year ended December 31, 2024 were primarily due to remeasurement of the fair value of crypto assets held, mainly reflecting increases in the prices of Bitcoin and Ethereum. 98 Table of Contents Other income, net Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Losses (gains) on strategic investments, net $ 11,553 $ (24,368) $ 35,921 (147) Gain on extinguishment of long-term debt, net — (117,383) 117,383 nm Other (40,627) (25,832) (14,795) 57 Total other income, net $ (29,074) $ (167,583) $ 138,509 (83) __________________ nm - not meaningful Other income, net changed for the year ended December 31, 2024 as compared to 2023, due to: • a decrease in gains on strategic investments, net driven by a gain of $49.9 million resulting from an equity investment transaction with Circle US Holding, Inc. during the third quarter of 2023; and • a net gain on the repurchase of certain of our 2026 Convertible Notes and certain of our Senior Notes during 2023. There were no material changes to note within other. Provision for (benefit from) income taxes Year Ended December 31, Change (in thousands, except %) 2024 2023 $ % Provision for (benefit from) income taxes $ 363,578 $ (171,716) $ 535,294 (312) For the year ended December 31, 2024 as compared to 2023, the increase in provision for income taxes was primarily due to higher pretax income, partially offset by tax benefits from stock-based compensation. Additionally, the 2023 income tax provision reflected a benefit from the reduction of a valuation allowance recorded on impairment charges and strategic investments. In December 2021, the Organization for Economic Cooperation and Development introduced Pillar Two model rules imposing a 15% global minimum tax on companies such as ours. We operate in several jurisdictions that have introduced Pillar Two legislation with effect from January 1, 2024. Pillar Two did not have a material impact on our tax provision for 2024. However, we may be impacted in future years as this framework is modified and adjusted in the jurisdictions where we operate. Non-GAAP Financial Measure In addition to our results determined in accordance with GAAP, we believe Adjusted EBITDA, a non-GAAP financial performance measure, is useful information to help investors evaluate our operating performance because it: enables investors to compare this measure and component adjustments to similar information provided by peer companies and our past financial performance; provides additional company-specific adjustments for certain items that may be included in income from operations but that we do not consider to be normal, recurring, operating expenses (or income) necessary to operate our business given our operations, revenue generating activities, business strategy, industry, and regulatory environment; and provides investors with visibility to a measure management uses to evaluate our ongoing operations and for internal planning and forecasting purposes. For example: • We believe it is useful to exclude certain non-cash expenses, such as depreciation and amortization and stock-based compensation, from Adjusted EBITDA because the amounts of such expenses can vary significantly from period to period and may not directly correlate to the underlying performance of our business operations. 99 Table of Contents • We believe it is useful to exclude certain items that we do not consider to be normal, recurring, cash operating expenses and therefore, not reflective of our ongoing business operations. For example, we exclude: (i) other (income) expense, net, as the income and expenses recognized in this line item are not part of our core operating activities and are considered non-operating activities under GAAP, (ii) gains and losses on crypto assets held for investment (post-adoption of ASU 2023-08) because such investments are considered primarily long-term holdings, we do not plan on engaging in regular trading of crypto assets, and, as an operating company, our investing activities in crypto are not part of our revenue generating activities, which are based on transactions on our platform and the sales of subscriptions and services, and (iii) the impact of our restructuring in 2023, which was not related to our normal business operations. • We believe Adjusted EBITDA is useful to measure a company’s operating performance without regard to items such as stock-based compensation expense, depreciation and amortization expense, interest expense, other (income) expense, net, restructurings, and benefit from or provision for income taxes that can vary substantially from company to company depending upon their financing, capital structures, and the method by which assets were acquired. Limitations of Adjusted EBITDA We believe that Adjusted EBITDA may be helpful to investors for the reasons noted above. However, Adjusted EBITDA is presented for supplemental informational purposes only, has limitations as an analytical tool, and should not be considered in isolation or as a substitute for financial information presented in accordance with GAAP. There are a number of limitations related to Adjusted EBITDA rather than net income (loss), which is the nearest GAAP equivalent of Adjusted EBITDA. Some of these limitations are that Adjusted EBITDA excludes: • provision for (benefit from) income taxes; • interest expense, or the cash requirements necessary to service interest or principal payments on our debt, which reduces cash available to us; • depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated and amortized may have to be replaced in the future; • stock-based compensation expense, which has been, and will continue to be for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy; • net gains or losses on our crypto assets held for investment, net, after the adoption of ASU 2023-08; • other (income) expense, net, which represents foreign exchange gains or losses, gains or losses on strategic investments, net, gains on the repurchase of certain of our long-term debt, and other non-operating income and expense activity; • non-recurring lease charges, which represent a non-recurring fee and write-off related to an early lease termination; • non-recurring accrued legal contingencies, settlements, and related costs, which reduces cash available to us; • impairment on crypto assets still held, net, which represents impairment on crypto assets still held and is a non-cash expense, prior to the adoption of ASU 2023-08; and • the impact of restructuring, which is not related to normal operations but impacted our results in 2023. 100 Table of Contents In addition, other companies, including companies in our industry, may calculate Adjusted EBITDA differently or may use other measures to evaluate their performance, all of which could reduce the usefulness of our disclosure of Adjusted EBITDA as a tool for comparison. A reconciliation is provided below for Adjusted EBITDA to Net income (loss), the most directly comparable financial measure stated in accordance with GAAP. Investors are encouraged to review the related GAAP financial measure and the reconciliation of Adjusted EBITDA to Net income (loss), and not to rely on any single financial measure to evaluate our business. Revised definition of Adjusted EBITDA During the first quarter of 2024, we revised our definition of Adjusted EBITDA as follows and recast the prior period for comparability: • to adjust for other (income) expense, net in total, as the entire line item represents non-operating activity, and as a majority of the activity recorded in other (income) expense, net had been included in the calculation of Adjusted EBITDA previously in separate rows while this combined presentation is more streamlined and easily reconciled to our Consolidated Statements of Operations; • to revise our definition of Adjusted EBITDA to remove the adjustment for crypto asset borrowing costs on Prime Financing, as even though these costs are akin to interest expense on debt, we believe they represent normal, recurring, operating expenses necessary to expand and grow Prime Financing; and • to revise our definition of Adjusted EBITDA to change what is adjusted with respect to gains and losses on crypto assets in connection with the adoption of ASU 2023-08, adjusting post-adoption only for gains and losses on crypto assets held for investment, as they do not represent normal, recurring, operating expenses (or income) necessary to operate our business. 101 Table of Contents The following table provides a reconciliation of Net income (loss) to Adjusted EBITDA. The prior period comparative reconciliation has been updated to conform to the current period presentation (in thousands): Year Ended December 31, 2024 2023 Net income $ 2,579,066 $ 94,871 Adjusted to exclude the following: Provision for (benefit from) income taxes 363,578 (171,716) Interest expense 80,645 82,766 Depreciation and amortization 127,518 139,642 Stock-based compensation expense (1) 912,838 780,668 Gains on crypto assets held for investment, net (post-adoption of ASU 2023-08) (687,055) — Other income, net (2) (29,074) (167,583) Non-recurring lease charges — 31,955 Non-recurring accrued legal contingencies, settlements, and related costs — 15,000 Impairment on crypto assets still held, net (pre-adoption of ASU 2023-08) — 29,481 Restructuring — 142,594 Adjusted EBITDA $ 3,347,516 $ 977,678 Revised definition no longer adjusts for: Crypto asset borrowing costs $ 4,807 Other impairment expense 18,793 Revised definition newly adjusts for: Additional other income, net (3) (37,624) Adjusted EBITDA, previous definition $ 963,654 __________________ (1) Amount in 2023 excludes stock-based compensation expense recognized in relation to restructuring, which is included below in the restructuring line in this table. See Note 20. Restructuring , of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details. (2) See Note 16. Other (Income) Expense, Net , of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details. (3) Represents the portion of Other (income) expense, net that was not previously included as an adjustment to arrive at Adjusted EBITDA. Liquidity and Capital Resources We continue to believe our existing cash and cash equivalents and USDC will be sufficient in both the short and long term to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements. Our ability to meet our requirements and plans for cash, including meeting our working capital and capital expenditure requirements, will depend on many factors, including market acceptance of crypto assets and blockchain technology, our growth, our ability to attract and retain customers on our platform, the continuing market acceptance of our products and services, the introduction of new subscription products and services on our platform, expansion of sales and marketing activities, and overall economic conditions. We anticipate satisfying our short-term cash requirements with our existing cash and cash equivalents and USDC and with future cash flows from operations and may satisfy our long-term cash requirements additionally with proceeds from a future equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders. The incurrence of additional debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict our operation s. 102 Table of Contents Primary resources and commitments Cash and cash equivalents and USDC Our cash and cash equivalents and USDC balances consisted of the following (in thousands): December 31, 2024 2023 Cash and cash equivalents Cash equivalents (1) $ 6,607,023 $ 3,682,917 Cash held at banks 1,848,700 1,367,643 Cash held at venues 88,180 88,791 Total cash and cash equivalents $ 8,543,903 $ 5,139,351 USDC (2) USDC loaned (3) $ 168,795 $ 205,645 USDC pledged as collateral (3) 329,832 29,577 USDC not loaned or pledged as collateral 743,181 340,806 Total USDC $ 1,241,808 $ 576,028 __________________ (1) Cash equivalents consists of money market funds. (2) USDC is a stablecoin redeemable on a one-to-one basis for U.S. dollars. While not accounted for as cash or cash equivalents, we treat our USDC holdings as a liquidity resource. (3) USDC loaned represents loaned assets that do not meet the criteria for derecognition in our Consolidated Balance Sheets. USDC pledged as collateral represents assets pledged as collateral that do not meet derecognition criteria against our crypto asset borrowings in our Consolidated Balance Sheets. See Note 2. Summary of Significant Accounting Policies—Collateralized arrangements and financing of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details. Long-term debt On March 18, 2024, we issued $1.3 billion in aggregate principal amount of convertible senior notes that mature on April 1, 2030, unless converted, redeemed or repurchased on an earlier date. As of December 31, 2024, we held $4.3 billion in aggregate principal amount of long-term debt. As market conditions warrant, we may, from time to time, repurchase our outstanding long-term debt securities in the open market, in privately negotiated transactions, by exchange transaction, or otherwise. Such repurchases, if any, will depend on prevailing market conditions, our liquidity, and other factors, and may be commenced or suspended at any time. The amounts involved and total consideration paid may be material. In 2023, we repurchased $427.0 million in aggregate principal amount of our outstanding long-term debt securities for cash payments aggregating $303.5 million . See Note 10. Long-Term Debt of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for additional details on our long-term debt, including maturities and repurchases. As of December 31, 2024 and 2023 , our ratings with S&P Global Ratings were BB- for both issuer credit and senior unsecured debt. As of December 31, 2024 and 2023, our ratings with Moody’s Ratings were B2 for corporate family and B1 for guaranteed senior unsecured notes. Other resources and commitments Crypto assets The Company holds crypto assets for investment and operating purposes, as well as borrowed crypto assets and crypto assets held as collateral. Effective January 1, 2024, we adopted ASU 2023-08 using a modified retrospective approach and recognized an associated fair value adjustment of $739.5 million on 103 Table of Contents the crypto assets we held at that time. This adjustment caused the carrying values of the crypto assets we already held at the time to reflect their fair values and, as such, this adjustment does not represent additional capital resources generated during 2024. Crypto assets held for operations We primarily receive crypto assets held for operations as payments for transaction revenue, blockchain rewards, custodial fee revenue, and other subscriptions and services revenue. Our intent is to convert crypto assets received as a form of payment to cash or to use them to fulfill expenses, primarily blockchain rewards, nearly immediately. During times of instability in the crypto assets market, we may not be able to sell our crypto assets at reasonable prices or at all. As a result, our crypto assets held for operations are considered less liquid than our cash and cash equivalents and may not be able to serve as a source of liquidity for us to the same extent as cash and cash equivalents. See Note 5. Crypto Assets Held for Operations of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details. Crypto assets held as collateral Crypto assets held as collateral represent institutional customers’ crypto assets pledged as collateral on certain Prime Financing loans. See Note 4. Collateralized Arrangements and Financing of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details related to collateral held and our obligation to return collateral. As Prime Financing grows, we will continue to evaluate how to best utilize these resources to help fund the growth of this business. Crypto assets borrowed and borrowings We borrow crypto assets from eligible institutional customers. These borrowings generally have open-ended terms or have a term of less than one year. We are required to maintain a collateral to loan ratio per our borrowing agreements. Any significant change in crypto asset prices could impact the value of the crypto assets borrowed or the value of crypto assets pledged as collateral . If crypto asset prices rise, we will post additional collateral to maintain required collateral loan ratio s. We were in compliance with all collateral requirements as of December 31, 2024. See Note 4. Collateralized Arrangements and Financing of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details relating to crypto assets borrowed and borrowings. Crypto assets held for investment We view our crypto asset investments as primarily long-term holdings and we do not and do not plan to engage in regular trading of these crypto assets. In case of a liquidity stress event, or for other episodic purposes, which may necessitate the use of these assets, we may change our policy and sell crypto assets held for investment to generate liquidity. See Note 7. Crypto Assets Held for Investment of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details. Customer assets and liabilities Recognized c ustomer assets and liabilities comprise customer custodial funds and corresponding customer custodial liabilities that represent our obligation to return these assets to the customers. We also hold additional customer Assets on Platform that we do not recognize in our Consolidated Balance Sheets. See Key Business Metrics — Assets on Platform above, and Note 2. Summary of Significant Accounting Policies — Customer custodial funds and Customer custodial fund liabilities of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details. We do not use customer crypto assets as collateral for any loan, margin, rehypothecation, or other similar activities to which we or our affiliates are a party, without the customer’s consent. 104 Table of Contents Our business model does not expose us to liquidity risk if we have excessive redemptions or withdrawals from customers. As of December 31, 2024, we have not experienced excessive redemptions or withdrawals, or prolonged suspended redemptions or withdrawals, of crypto assets to date. See Risk Factors—Depositing and withdrawing crypto assets into and from our platform involves risks, which could result in loss of customer assets, customer disputes and other liabilities, which could adversely affect our business, operating results, and financial condition included in Part I, Item 1A of this Annual Report on Form 10-K for further information. Capital requirements and contractual obligations Certain jurisdictions where we operate require us to hold eligible liquid assets, as defined by applicable regulatory requirements and commercial law in these jurisdictions, equal to at least 100% of the aggregate amount of all customer custodial fund liabilities. Depending on the jurisdiction, eligible liquid assets can include cash and cash equivalents, customer custodial funds, and in-transit customer receivables. As of December 31, 2024 and 2023, our eligible liquid assets were greater than the aggregate amount of customer custodial fund liabilities. We are also required to hold corporate liquid assets at our subsidiaries to meet capital requirements established by our regulators based on the value of crypto assets held in custody. As of December 31, 2024, we were in compliance with these capital requirements. As of December 31, 2024 , our material cash requirements and contractual obligations arising in the normal course of business due within the next 12 months and in total consisted of the following (in thousands): Amounts Due Next 12 Months Total Operating leases (1) $ 9,885 $ 132,327 Non-cancelable purchase obligations (2) 119,874 198,486 Long-term debt (3) Interest 70,010 349,089 Principal — 4,275,470 Total $ 199,769 $ 4,955,372 _______________ (1) Primarily relating to lease payments due for corporate offices. See Note 12. Other Consolidated Balance Sheets Details of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details. (2) Committed spend for non-cancellable purchase obligations greater than $2.0 million per obligation, primarily relating to technology and marketing. (3) Assumes that our long-term debt is not repurchased, redeemed, or converted prior to maturity. See Note 10. Long-Term Debt of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details. See Notes 12. Other Consolidated Balance Sheets Details, 17. Income Taxes, and 21. Commitments and Contingencies of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K, for additional details relating to our short- and long-term material cash requirements and contractual obligations as of December 31, 2024. In October 2024, our board of directors authorized a share repurchase program of up to $1.0 billion of our Class A common stock without expiration (the “Share Repurchase Program”). Repurchases may be made at management’s discretion from time to time on the open market (including through trading plans intended to qualify under Rule 10b5-1 under the Exchange Act), through privately negotiated transactions, or by other methods in accordance with applicable securities laws and other restrictions. The timing and amount of any repurchases will depend on market conditions and other considerations. The Share Repurchase Program does not obligate us to repurchase any dollar amount or number of shares of our Class A common stock, and the program may be modified, suspended, or discontinued at any time. We anticipate that repurchases under the Share Repurchase Program will be funded using our existing cash 105 Table of Contents and cash equivalents and USDC and with future cash flows from operations. As of December 31, 2024, no shares have been repurchased under the Share Repurchase Program. Cash flows The following table summarizes our Consolidated Statements of Cash Flows (in thousands): Year Ended December 31, 2024 2023 Net cash provided by operating activities $ 2,556,844 $ 922,951 Net cash (used in) provided by investing activities (282,385) 5,392 Net cash provided by (used in) financing activities 2,828,921 (811,332) Net increase in cash, cash equivalents, and restricted cash and cash equivalents $ 5,103,380 $ 117,011 Change in customer custodial cash and cash equivalents $ 1,634,934 $ (585,666) Operating activities Our largest source of cash provided by operations are revenues generated from transaction fees. Our primary uses of cash from operating activities include payments to employees for compensation, website hosting and infrastructure services, and professional services. Net cash provided by operating activities increased by $1.6 billion for the year ended December 31, 2024 as compared to 2023 primarily due to: • an increase in cash as a result of the $3.5 billion increase in total revenue; offset in part by • a $801.7 million increase in cash used to purchase USDC in order to facilitate growth in Prime Financing as well as to provide liquidity for normal business operations; • a $115.2 million increase in cash used for annual employee performance compensation given our strong financial performance during the prior year; • a $106.1 million increase in cash used to pay income taxes; and • an overall increase in other cash expenses as we continue to grow our business. Investing activities Net cash used in investing activities increased by $287.8 million for the year ended December 31, 2024 as compared to 2023 due to: • an increase of $138.6 million in cash used for the origination of fiat loans, net of repayments, reflecting growth in Prime Financing and lower net cash inflows in 2024 related to the discontinuation of a retail lending program; and • $41.6 million in cash provided by net sales of crypto assets held for investment for the year ended December 31, 2024, as compared to $184.0 million in cash provided by net sales of crypto assets held prior to the adoption of ASU 2023-08 for the year ended December 31, 2023. Financing activities Net cash provided by financing activities increased by $3.6 billion for the year ended December 31, 2024 as compared to 2023 primarily due to: • a $1.9 billion increase in customer custodial cash attributable to increased Trading Volume; 106 Table of Contents • a $1.1 billion net increase in cash due to proceeds from the issuance of our 2030 Convertible Notes less cash paid for associated capped calls; • a $303.5 million decrease in cash outflows in 2024 related to long-term debt repurchases in 2023; and • a $22.5 million net increase in recognized fiat collateral pledged by institutional customers related to Prime Financing loans. Critical Accounting Estimates Our Consolidated Financial Statements and the related notes included elsewhere in this Annual Report on Form 10-K are prepared in accordance with GAAP. The preparation of our Consolidated Financial Statements also requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, costs, and expenses and related disclosures. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ significantly from our estimates. To the extent that there are differences between our estimates and actual results, our future financial statement presentation, financial condition, operating results, and cash flows will be affected. See Note 2. Summary of Significant Accounting Policies of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a summary of significant accounting policies and significant estimates and assumptions and their effects on our financial statements. Below are the significant estimates and assumptions that we consider critical because they involve a significant amount of estimation uncertainty and have had or are reasonably likely to have a material impact on our financial condition or results of operations. Business combinations, goodwill, and intangible assets We determined that business combinations, goodwill, and intangible assets represent critical accounting estimates, as they involve significant judgment, estimates, and assumptions and to the extent that our estimates and assumptions materially change or if actual circumstances differ from those in the assumptions, our financial statements could be materially impacted. We account for our business combinations using the acquisition method of accounting, which requires, among other things, allocation of the fair value of purchase consideration to the tangible and intangible assets acquired and liabilities assumed at their estimated fair values on the acquisition date. When determining the fair value of assets acquired and liabilities assumed, we make significant estimates and assumptions, especially with respect to non-crypto intangible assets. These intangible assets do not have observable prices and have primarily consisted of customer relationships, developed technology, licenses, trademarks and trade names, and non-compete agreements, which are subsequently measured at acquisition date fair value, less accumulated amortization. These estimates and assumptions can include, but are not limited to, the cash flows that an asset is expected to generate in the future, the appropriate weighted-average cost of capital, the number of working hours required to recreate the intangible asset (if following the cost approach), and the estimated useful lives. Changes in these assumptions could affect the carrying value of these assets. Our estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and, as a result, actual results may differ from estimates. Goodwill We perform an impairment test annually in the fourth quarter or whenever events or changes in circumstances indicate that the carrying value of goodwill might not be fully recoverable. In accordance with applicable accounting guidance, a company can assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test. Alternatively, a company may elect to proceed directly to a quantitative goodwill impairment test. We do the former and assess qualitative factors to determine whether it is necessary to perform a goodwill impairment test. We review factors including changes in our 107 Table of Contents stock price, macroeconomic conditions, industry and market conditions, cost factors, overall financial performance, changes in any key personnel, and any changes in the composition of the carrying amount of our assets. There were no changes to the qualitative factors considered indicating an impairment of goodwill for the reporting periods presented. In the future, if there are material changes in the underlying estimates and assumptions pertaining to the impairment assessment, our financial statements could be materially impacted. For the reporting periods presented, we determined that it was more likely than not that the fair value of our reporting unit was more than the respective related carrying amounts, including goodwill, and therefore we did not record any goodwill impairment. Intangible assets Intangible assets are initially valued at fair value using generally accepted valuation methods appropriate for the type of intangible asset. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise. 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. Indicators we review, as applicable, include whether there has been a significant adverse change in the extent or manner in which our assets are being used, a significant adverse change in legal factors affecting our assets, customer attrition, and/or a cash flow loss. Due to the dynamic nature of our business and the regulatory environment in which we operate, it is not practicable to model sensitivity of the valuation of these assets to these factors. Each reporting period, we evaluate the estimated remaining useful life of our intangible assets and whether events or changes in circumstances warrant a revision to the remaining period of amortization. We did not identify indicators of impairment of our intangible assets during the reporting periods presented. In the future, if there are material changes in the underlying estimates and assumptions pertaining to the impairment assessment, our financial statements could be materially impacted. Strategic investments We hold strategic investments in privately held companies in the form of equity securities without readily determinable fair values in which we do not have a controlling interest or significant influence. The vast majority of these investments are accounted for under the measurement alternative method (“the measurement alternative”) and are measured at cost, less impairment, subject to upward and downward adjustments resulting from observable price changes for identical or similar investments of the same issuer (“pricing adjustments”). We determined that valuation of privately-held strategic investments represents a critical accounting estimate because impairment evaluations involve significant judgment, estimates, and assumptions, and to the extent that these estimates and assumptions change materially or if actual circumstances differ from those in the assumptions, our financial statements could be materially impacted. Pricing adjustments Pricing adjustments require quantitative assessments of the fair value of our strategic investments, which may require the use of unobservable inputs. Pricing adjustments are determined by using various valuation methodologies and involve the use of estimates using the best information available, which may include cash flow projections or other available market data. Impairment Privately-held strategic investments are evaluated quarterly for impairment. Our qualitative analysis includes a review of indicators such as: operating results when available, business prospects of the investees, changes in the regulatory and macroeconomic environment, observable price changes in similar transactions, and general market conditions of the geographical area or industry in which our investees operate. If indicators of impairment exist, we prepare quantitative measurements of the fair value of our equity investments using an Option-Pricing Model that uses publicly available market data of comparable companies and other unobservable inputs including expected volatility, expected time to 108 Table of Contents liquidity, adjustments for other company-specific developments, and the rights and obligations of the securities we hold. When the quantitative remeasurements of fair value indicate an impairment exists, we write down the investment to its current fair value. We anticipate volatility to our net income (loss) in future periods due to changes in the fair values associated with these investments and changes in observable prices and similar transactions that could impact our fair value assessments. Based on future market conditions, these changes could be material to our financial statements. For more information regarding these market conditions and related sensitivity, see the section titled “ Item 7A. Quantitative and Qualitative Disclosures about Market Risk – Equity investment risk . See Note 13. Fair Value Measurements of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for details of changes in our strategic investments for the years ended December 31, 2024 and 2023. Income taxes We determined that income taxes involve critical accounting estimates because management makes significant estimates, assumptions, and judgments to determine our provision for income taxes, deferred tax assets and liabilities, and any valuation allowance recorded against deferred tax assets, and to the extent that our estimates and assumptions materially change, or if actual circumstances differ materially from those in the assumptions, our financial statements could be materially impacted. We utilize the asset and liability method for computing our income tax provision. Deferred tax assets and liabilities reflect the expected future consequences of temporary differences between the financial reporting and tax bases of assets and liabilities as well as operating loss, capital loss, and tax credit carryforwards, using enacted tax rates. We assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent we believe that recovery is not likely, we establish a valuation allowance. Assessing the need for a valuation allowance requires a great deal of judgment and we consider all available evidence, both positive and negative, to determine whether it is more likely than not that our deferred tax assets are recoverable. We evaluate all available evidence including, but not limited to, history of earnings and losses, forecasts of future taxable income, and the weight of evidence that can be objectively verified. See Note 17. Income Taxes of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for details of changes in our valuation allowance for the years ended December 31, 2024, 2023, and 2022. We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and penalties related to unrecognized tax benefits are recognized within the provision for income taxes. See Note 17. Income Taxes of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for details of changes in unrecognized tax benefits for the years ended December 31, 2024, 2023, and 2022. For U.S. federal tax purposes, crypto asset transactions are treated under the same tax principles as property transactions. We recognize 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. Legal and other contingencies We are subject to various legal proceedings and claims that arise in the ordinary course of business, the outcomes of which are inherently uncertain, and such uncertainty may be enhanced due to the industry in which we operate. We record a liability when it is probable that a loss has been incurred and the amount is reasonably estimable, the determination of which requires significant judgment. In addition, 109 Table of Contents we record recoveries of these losses when it is probable that they will be collected. These estimates are highly sensitive to change and involve variables that are not completely within our control nor practicable to model, including decisions made by regulators and settlement negotiations. Resolution of legal and other contingencies in a manner inconsistent with management’s expectations could have a material impact on our financial condition and results of operations. See the section titled “ —Results of operations—Comparison of the years ended December 31, 2024 and 2023—Operating expenses—General and administrative ” above for discussion of material changes in legal and other contingencies during the years ended December 31, 2024 and 2023. Recent accounting pronouncements See Note 2. Summary of Significant Accounting Policies — Recent accounting pronouncements of the Notes to our Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K for a discussion of new accounting pronouncements adopted and not yet adopted as of the date of this Annual Report on Form 10-K.