SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2024

The accompanying Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries – entities in which the Company holds, directly or indirectly, more than 50% of the voting rights, or where it exercises control. The Condensed Consolidated Financial Statements are unaudited but have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) on the same basis as the audited Consolidated Financial Statements, and in management’s opinion, reflect all adjustments, consisting only of normal, recurring adjustments, that are necessary for the fair presentation of the Company’s Financial Statements. Preparation of the Condensed Consolidated Financial Statements in accordance with GAAP requires management to make estimates and assumptions in the Condensed Consolidated Financial Statements and notes thereto. Certain prior period amounts in the Condensed Consolidated Financial Statements have been reclassified to conform to the current period’s presentation. The unaudited Condensed Consolidated Results of Operations for the three months ended March 31, 2024 are not necessarily indicative of the results to be expected for the full year or any other period and should be read in conjunction with the audited Consolidated Financial Statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on February 15, 2024 (the “Annual Report”).

There were no changes to the Company’s most significant estimates and assumptions, significant accounting policies, or recent accounting pronouncements that were disclosed in Note 2. Summary of Significant Accounting Policies to the audited Consolidated Financial Statements included in the Annual Report, other than as discussed below.

Concentration of credit risk

The Company’s cash and cash equivalents, restricted cash, customer custodial funds, accounts receivable, loan receivables and deposits 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, restricted cash, and crypto assets at crypto asset trading venues, payment processors, and clearing brokers, and performs a regular assessment of these venues as part of its risk management process. As of March 31, 2024, the Company held $203.3 million at these venues, including $124.8 million in unrestricted cash, $63.6 million in crypto assets, and $14.9 million in restricted deposits. As of December 31, 2023, the Company held $93.5 million at these venues, including $88.8 million in unrestricted cash, an immaterial amount of crypto assets, and $4.7 million in restricted deposits.

The issuer of USDC reported that, as of March 31, 2024, underlying reserves were held in cash, short-duration U.S. Treasuries, and overnight U.S. Treasury repurchase agreements within segregated accounts for the benefit of USDC holders.

As of March 31, 2024 and December 31, 2023, the Company had five and three counterparties and four and three counterparties, respectively, who accounted for more than 10% of the Company’s recorded loan receivables and unrecorded loans receivable, respectively. As of both March 31, 2024 and December 31, 2023, the Company had two counterparties who accounted for more than 10% of the Company’s Accounts receivable, net. See Note 6. Collateralized Arrangements and Financing for details on collateralization of loan receivables.

During the three months ended March 31, 2024 and 2023, one counterparty accounted for more than 10% of total revenue in each period.

Crypto assets held

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, the Company adopted ASU No. 2023-08, Accounting for and Disclosure of Crypto Assets (“ASU 2023-08”) using a modified retrospective approach. Upon adoption, the Company recognized a fair value adjustment on crypto assets held of $739.5 million and established a deferred tax liability of $177.9 million, for a net cumulative-effect adjustment of $561.5 million increasing retained earnings.

As a result of the adoption of ASU 2023-08, the Company introduced four new categories of crypto assets held in the Condensed Consolidated Balance Sheets based on their nature. This updated presentation aligns with the requirements of ASU 2023-08 and describes the purpose of the various types of crypto assets held by the Company.

Crypto assets held for investment

Crypto assets held for investment are primarily held as long-term holdings. The Company does not engage in regular trading of these crypto assets. The Company may loan crypto assets held for investment through Prime Financing. See Note 6. Collateralized Arrangements and Financing for additional details on Prime Financing. Crypto assets held for investment are initially recorded at cost and

are subsequently remeasured at fair value on a specific identification basis at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets held for investment are recognized within Gains on crypto assets held for investment, net in the Condensed Consolidated Statements of Operations. Cash flows from crypto asset investment purchases and sales are recorded in Net cash used in investing activities in the Condensed Consolidated Statements of Cash Flows.

Crypto assets held for operations

The Company may receive crypto assets as a form of payment for transaction revenue, blockchain rewards, custodial fee revenue, and other subscriptions and services revenue which are recorded in Crypto assets held for operations when received. Crypto assets received as a form of payment are converted to cash nearly immediately or are used timely to fulfill corporate expenses. Crypto assets held for operations are initially recorded at the transaction price of the crypto assets at contract inception and are subsequently remeasured at fair value on a first in first out basis at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets held for operations are recorded in Gains on crypto assets held for operations, net in the Condensed Consolidated Statements of Operations. Cash flows from crypto assets held for operations are recorded as Net changes in operating assets and liabilities in the Condensed Consolidated Statements of Cash Flows. Crypto assets held for operations are recorded in Other current assets in the Condensed Consolidated Balance Sheets.

Crypto assets borrowed

Crypto assets borrowed represent crypto assets borrowed from third parties to facilitate Prime Financing. Prior to the adoption of ASU 2023-08, crypto assets borrowed were designated as fair value hedges, and accounted for as hybrid instruments, with a liability host contract that contained an embedded derivative based on the changes in fair value of the underlying crypto asset. Contemporaneously with the adoption of ASU 2023-08, the Company dedesignated $62.9 million of crypto assets borrowed that previously qualified as fair value hedges against the corresponding crypto asset borrowing. There was a net zero impact of the cumulative fair value hedge basis adjustments that were reversed and recorded in Transaction expense. As of December 31, 2023, the cumulative amount of fair value hedging adjustment was $3.9 million.

Post dedesignation and ASU 2023-08 adoption, crypto assets borrowed by the Company, that have not been loaned out, are recorded in Crypto assets borrowed in the Condensed Consolidated Balance Sheets. Crypto assets borrowed are initially recorded at cost and are subsequently remeasured at fair value using the average costing method at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets borrowed are recorded within Transaction expenses. See Note 6. Collateralized Arrangements and Financing for further details on Crypto assets borrowed and Note 21. Supplemental Disclosures of Cash Flow Information for details on cash flows from crypto assets borrowed included in the supplemental schedule of non-cash investing and financing activities.

Crypto assets held as collateral

For loans receivable, the Company requires borrowers to pledge collateral on loans offered under Prime Financing. Crypto assets held as collateral are initially recorded at cost if the Company has the right to sell, pledge or rehypothecate and are subsequently remeasured at fair value using the specific identification method at the end of each reporting period, with changes in fair value recognized in net income. Fair value is measured using quoted crypto asset prices at the time of measurement within the Company’s principal market. Fair value gains and losses on Crypto assets held as collateral are recorded

in Transaction expenses. See Note 6. Collateralized Arrangements and Financing for additional details on crypto assets borrowed and Note 21. Supplemental Disclosures of Cash Flow Information for details on cash flows from Crypto assets held as collateral included in the supplemental schedule of non-cash investing and financing activities.

The following table presents the effects of the changes in presentation in the Condensed Consolidated Balance Sheets (in thousands):


	December 31, 2023
		Previously Reported		Adjustment		As Adjusted
Crypto assets held(1)		$	449,925	$	(449,925)	$	—
Crypto assets held for investment		—		330,610		330,610
Crypto assets held for operations		—		74,103		74,103
Crypto assets borrowed		—		45,212		45,212
		$	449,925	$	—	$	449,925

_________________

(1)No crypto assets held as collateral met the recognition criteria as of December 31, 2023.

Recent accounting pronouncements

There have been no new developments to recently issued accounting standards, including the expected dates of adoption and estimated effects on the Company’s Consolidated Financial Statements and footnote disclosures, from those disclosed in the Annual Report.