TERAWULF INC.WULF
TERAWULF INC. Fair Value Disclosure
FAIR VALUE MEASUREMENTS
Fair value is defined as an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability.
As a basis for considering such assumptions, a three-level fair value hierarchy prioritizing the inputs to valuation techniques is used to measure fair value. This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when determining fair value. The levels are as follows:
(Level 1) observable inputs such as quoted prices in active markets for identical assets or liabilities;
(Level 2) observable inputs for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; or inputs other than quoted prices that are observable either directly or indirectly from market data; and
(Level 3) unobservable inputs for which there is little or no market data, which require the Company to develop its own assumptions.
The following tables present the Company’s financial instruments that are measured and recorded at fair value on the Company’s consolidated balance sheets on a recurring basis, segregated by hierarchy fair value levels as of December 31, 2025 and 2024 (in thousands):
Fair Value Measured as of December 31, 2025 | |||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Digital assets | $ | 270 | $ | 270 | $ | — | $ | — | |||||||||||||||
| Warrant liabilities | 844,698 | — | — | 844,698 | |||||||||||||||||||
| $ | 844,968 | $ | 270 | $ | — | $ | 844,698 | ||||||||||||||||
Fair Value Measured as of December 31, 2024 | |||||||||||||||||||||||
| Carrying Value | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||
| Digital assets | $ | 476 | $ | 476 | $ | — | $ | — | |||||||||||||||
| $ | 476 | $ | 476 | $ | — | $ | — | ||||||||||||||||
Other Fair Value Measurements
The Company has determined the fair value of the 2030 Convertible, Notes, 2031 Convertible Notes, 2032 Convertible Notes, and 2030 Secured Notes to be approximately $814.5 million, $1,180.3 million, $896.6 million, and $3,300.7 million, respectively, as of December 31, 2025 (see Note 10) using Level 1 inputs. The carrying values of cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses, other receivables, other current assets, accounts payable, accrued construction liabilities, accrued compensation, accrued interest, accrued lessor costs, other accrued liabilities and other amounts due to related parties are considered to be representative of their respective fair values principally due to their short-term maturities.
Nonrecurring Fair Value Measurements
There were no additional material non-recurring fair value measurements as of December 31, 2025 and 2024, except for (i) the calculation of fair value of Common Stock issued in connection with the New Ground Lease (see Note 16), (ii) the calculation of fair value of Common Stock warrants issued in connection with amendments to the Company’s long-term debt agreement (see Note 10), in connection with the issuance of Common Stock (see Note 16), in connection with a Common Stock exchange agreement and on a standalone basis, (iii) and the calculation of fair value of nonmonetary assets distributed from the Company’s joint venture (see Note 12), (iv) the calculation of PSUs granted to employees as stock-based compensation (see Note 17) (v) the calculation of the fair value of components of total consideration transferred in the business acquisition of Beowulf E&D, including contingent consideration, and the allocation of the purchase price to the fair values of the assets acquired and liabilities assumed, (vi) the calculation of fair value of Common Stock issued in connection with the Cayuga Lease (see Note 8), (vii) the calculation of fair value of embedded derivatives in the Company’s 2031 Convertible Notes (see Note 10) and (viii) the calculation of fair value of the Google Warrants (see Note 8).
The Company utilized a Black-Scholes option pricing model to value its Common Stock warrants issued in connection with the Google Backstop (see Note 8). The estimated fair value of the warrants is classified as Level 3 measurement due to the use of unobservable inputs. Key assumptions used in the valuation model included expected share-price volatility, expected term, risk-free interest rate, and dividend yield. Expected volatility was based on historical and implied stock price volatility of the Company. The risk-free interest rate was derived from U.S. Treasury yields on the grant date with a maturity corresponding to the expected life of the warrants. The Company applied a dividend yield of zero, consistent with historical practice and expectations. The Company recognized a loss of $329.2 million during the year ended December 31, 2025, for the change in fair of the Google Warrants (see Note 8) which is included in change in fair value of warrants and derivative liabilities in the consolidated statement of operations.
The Company estimated the fair value of the conversion feature of the 2031 Convertible Notes using a “with-and-without” approach as the difference between the value of the 2031 Convertible Notes with and without the conversion feature. The value of the 2031 Convertible Notes under the “with” scenario was estimated using a binomial lattice model in a risk-neutral framework (a special case of the Income Approach), taking into consideration the various conversion and redemption features of the 2031 Convertible Notes. The value of the 2031 Convertible Notes was then calculated as the probability-weighted present value over all future modeled payoffs. Under the “without” scenario, the 2031 Convertible Notes were modeled using a discounted cash flow analysis. Key assumptions used in the valuation model included expected share-price volatility, expected term, risk-free interest rate, and dividend yield. Expected volatility was based on market yields. The risk-free interest rate was derived from U.S. Treasury yields based on a term-matched risk-free rate. The Company applied a dividend yield of zero, consistent with historical practice and expectations.
The Company utilized a Monte Carlo simulation in a risk-neutral framework to estimate the fair value of the contingent consideration in the business acquisition, incorporating historical and expected annual volatility of approximately 110%, based on both the Company’s and peer public companies’ data. Key assumptions used in the valuation model also included the risk-free interest rate is derived from U.S. Treasury yields on the Acquisition Date with a maturity corresponding to the expected timing of achieving each contingent milestone. The Company applied a dividend yield of zero, consistent with historical practice and expectations.
The Company utilized a Black-Scholes option pricing model, along with a discount for lack of marketability (“DLOM”), to value its Common Stock warrants issued in connection with the Term Loans (as defined in Note 10). The DLOM reflects contractual restrictions on the exercise of the warrants. The estimated fair value of the warrants is classified as Level 3 measurement due to the use of unobservable inputs. Key assumptions used in the valuation model include expected share-
price volatility, expected term, risk-free interest rate, dividend yield, and DLOM. Expected volatility is based on historic volatility of a peer group of publicly traded companies over the expected term of the warrants, which is assumed to be equal to the contractual term. The risk-free interest rate is derived from U.S. Treasury yields on the grant date with a maturity corresponding to the expected life of the warrants. The Company applies a dividend yield of zero, consistent with historical practice and expectations. The Company applied a DLOM of 20% to value the warrants issued in connection with the first amendment of the LGSA and a DLOM of 30% for warrants issued in connection with the Fifth Amendment to the Term Loans.
In addition, the Company used a Monte Carlo simulation model to estimate the fair value of PSUs, incorporating historical and expected annual volatility of approximately 120%, based on both the Company’s and peer public companies’ data.
A DLOM of 10% was applied in determining the fair value of Common Stock issued in connection with the New Ground Lease. A DLOM of 9% was applied in determining the fair value of Common Stock issued on the Effective Date of the Cayuga Lease and a DLOM of 4.5% was applied in determining the fair value of additional Common Stock issued on September 30, 2025 relating to the Cayuga Lease (see Note 8).
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Feb 27, 2026 | Showing above |
| 2024 | Mar 3, 2025 | |
| 2023 | Mar 20, 2024 | |
| 2022 | Mar 31, 2023 | |
| 2021 | Mar 31, 2022 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.