The Company enters into certain strategic investments in the form of forward contracts to purchase a specified quantity of digital assets. Certain of these contracts are accounted for as derivatives or investments with embedded derivatives, and accounts for these derivatives and embedded derivatives within on the unaudited Condensed Consolidated Balance Sheets. The derivatives and bifurcated embedded derivatives are marked to market through in the unaudited Condensed Consolidated Statements of Operations. Embedded derivatives are presented together with the respective host contract on the unaudited Condensed Consolidated Balance Sheets.

The Company accounts for its obligation to return digital assets held as collateral as a debt host payable with an embedded derivative at fair value and recognizes the liability within Obligations to return digital asset collateral on the Consolidated Balance Sheets. The arrangement is a hybrid instrument, consisting of a debt host contract initially measured at fair value with an embedded forward feature based on the changes in the fair value of the underlying digital asset. Within the obligation to return digital asset collateral is a feature indexed to the underlying digital asset that is not clearly and closely related to a debt instrument and therefore meets the definition of a derivative, which requires bifurcation. Such feature is bifurcated and recorded at fair value through Digital assets (gains) losses and impairment on the Consolidated Statements of Operations. In the first quarter of 2023, the Company designated the embedded derivatives associated with the obligation to return digital asset collateral related to stablecoin lending as the hedging instrument in a fair value hedge relationship to hedge the fair value exposure of the corresponding digital assets. Subsequent to the fair value hedge designation, changes in the fair value of the hedged item were recorded to Digital assets (gains) losses and impairment along with the associated changes in the fair value of the embedded derivative in the Consolidated Statements of Operations. The hedging relationship was de-designated upon the adoption of ASU 2023-08 on January 1, 2024.

The Company enters into certain strategic investments in the form of forward contracts to purchase a specified quantity of digital assets. Certain of these contracts are accounted for as derivatives or investments with

 

embedded derivatives, and accounts for these derivatives and embedded derivatives within Investments on the Consolidated Balance Sheets. The derivatives and bifurcated embedded derivatives are marked to market through Other income (expense), net on the Consolidated Statements of Operations.

The fair value of the Company’s derivatives and embedded derivatives are as follows (in thousands):

The following table summarizes notional amounts related to derivatives and embedded derivatives (in thousands):

Gains (losses) on derivatives and embedded derivatives are as follows (in thousands):

 

For embedded derivatives designated as qualifying fair value hedges, the gain or loss on the embedded derivative and the offsetting gain or loss on the hedged item attributable to the hedged risk are recognized in in the Consolidated Statements of Operations. The carrying value of the hedged item is included in Digital assets on the Consolidated Balance Sheets. The carrying values and associated cumulative basis adjustments for fair value hedges are as follows (in thousands):