INVESTMENTS AND FAIR VALUE MEASUREMENT

9 Months Ended

Sep. 30, 2022

NOTE 7: INVESTMENTS AND FAIR VALUE MEASUREMENT

Investments

We invest in marketable debt securities which are classified as available-for-sale. We elected the fair value option on our available-for-sale debt securities and carry them at fair value with adjustments to fair value presented in other expense (income), net on our unaudited condensed consolidated statements of operations. Investments on our unaudited condensed consolidated balance sheet consisted of the following:


	December 31, 2021
(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Debt securities:
Asset-backed securities	$	5	$	—	$	—	$	5
Commercial paper	14		—		—		14
Corporate bonds	7		—		—		7
Government bonds	1		—		—		1
Total investments	$	27	$	—	$	—	$	27


	September 30, 2022
(in millions)	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Debt securities:
Asset-backed securities	$	4	$	—	$	—	$	4
Commercial paper	16		—		—		16
Corporate bonds	6		—		—		6
Government bonds	6		—		—		6
Total investments	$	32	$	—	$	—	$	32

All of our debt securities as of December 31, 2021 and September 30, 2022 had a stated contractual maturity or redemption date within one year.

Fair Value of Financial Instruments

Financial assets and liabilities measured at fair value on a recurring basis were presented on our unaudited condensed consolidated balance sheets as follows:


	December 31, 2021
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	4,004	$	—	$	—	$	4,004


Investments:
Asset-backed securities	—		5		—		5
Commercial paper	—		14		—		14
Corporate bonds	—		7		—		7
Government bonds	1		—				1
User-held fractional shares	1,834		—		—		1,834
Other current assets:
Equity securities - securities owned	14		—		—		14
Total financial assets	$	5,853	$	26	$	—	$	5,879

Liabilities


Fractional share repurchase obligations	$	1,834	$	—	$	—	$	1,834
Total financial liabilities	$	1,834	$	—	$	—	$	1,834


	September 30, 2022
(in millions)	Level 1		Level 2		Level 3		Total
Assets
Cash equivalents:
Money market funds	$	629	$	—	$	—	$	629


Investments:
Asset-backed securities	—		4		—		4
Commercial paper	—		16		—		16
Corporate bonds	—		6		—		6
Government bonds	6		—		—		6
Asset related to user cryptocurrencies safeguarding obligation	—		9,361		—		9,361
User-held fractional shares	1,029		—		—		1,029
Other current assets:
Equity securities - securities owned	7		—		—		7
Total financial assets	$	1,671	$	9,387	$	—	$	11,058

Liabilities


User cryptocurrencies safeguarding obligation	$	—	$	9,361	$	—	$	9,361
Fractional shares repurchase obligations	1,029		—		—		1,029
Total financial liabilities	$	1,029	$	9,361	$	—	$	10,390

During the nine months ended September 30, 2022, we did not have any transfers in or out of Level 3 assets or liabilities.

Safeguarded user cryptocurrencies

Safeguarded user cryptocurrencies were as follows:


(in millions)	September 30, 2022
Ethereum (ETH)	$	2,783
Bitcoin (BTC)	2,759
Dogecoin (DOGE)	2,603
Other	1,216
Total user cryptocurrencies safeguarding obligation and corresponding asset	$	9,361

The fair value of the user cryptocurrencies safeguarding obligation and the corresponding asset were determined based on observed market pricing representing the last price executed for trades of each cryptocurrency as of September 30, 2022.

Convertible Notes and Warrant Liability

In February 2021, we issued two tranches of convertible notes (the “convertible notes”) and granted to each purchaser of the Tranche I convertible notes a warrant to purchase equity securities (the “warrant liability”). We elected the fair value option for both tranches of the convertible notes as we believe it best reflects their underlying economics. Under the fair value option, the convertible notes were initially measured at their issuance date estimated fair value and subsequently remeasured at their estimated fair value at the end of each reporting period. We elected to present the component related to accrued interest in the change in fair value of convertible notes and warrant liability. Upon the closing of our IPO,

all of our outstanding convertible notes and warrants were reclassified from liability to equity and the fair value was no longer required to be remeasured.

For the three and nine months ended September 30, 2021, due to changes in fair value, we recorded expense of $28 million and $1.9 billion for the convertible notes, none of which was attributable to the change in the instrument-specific credit risk, and income of $2 million and $127 million for the warrant liability in our unaudited condensed consolidated statements of operations.

The following table sets forth a summary of the changes in the estimated fair value of our convertible notes and warrant liability:


(in millions)	Convertible notes		Warrant liability
Beginning of period, January 1, 2021	$	—	$	—
Issued during the period	3,299		253
Change in fair value	1,919		127
Reclassifications to equity	(5,218)		(380)
End of period, September 30, 2021	$	—	$	—

- 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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