FAIR VALUE MEASUREMENTS

12 Months Ended

Dec. 31, 2022

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.

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.

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.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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