What is DeFi Impermanent Loss?

Impermanent loss (IL) is a phenomenon that can occur when trading on decentralized finance (DeFi) platforms that use automated market makers (AMMs). It occurs when the price of a token on the AMM deviates from the price of the same token on other markets, such as centralized exchanges. In a practical example, Alice and Bob are liquidity providers (LPs) on an AMM for the token ABC. Alice provides 100 ABC and 100 ETH to AMM's liquidity pool, while Bob provides…