I dont understand what you mean with tunneling. Either FRR is eaten up by 6 figues + or not. But i dont see how it could get tunneled normally.
When taking a swap you can choose whether you want your demand to be matched with variable-rate swap offers or not. Which makes sense as a feature to have, because "FRR, currently 0.1%" isn't
necessarily better than, say, a fixed-rate swap at 0.11%, if you expect the going rate to rise. But when someone specifies a demand for a massive amount of swap with "Don't take variable-rate swaps" checked, they can sweep out all the fixed-rate offers up to 0.75% without touching the FRR wall at all.
Possible motivation for doing so... I guess it could be an attempt to push up the flash rate. If so, it is at least a "gentler" way of moving the going rate than the old game of "It grinds slowly down for months until at 0.02% the whole FRR wall goes at once, and then the going rate jumps dramatically up to 0.75% until the wall is rebuilt"
By the way (as someone who has already lent out money at Bitfinex at rates far beyond 1%/day historically): Even if you manage to get a 0.6%/day 30d loan out there, don't expect it to last any substantial amount of time.
Mostly very true - they don't last long. But if you happen to have funds repaid at the right moment it can still be worth trying to catch the spikes. I've had the rare/occasional swap last a lot longer than expected at a high rate (at least one that's still going after 2 weeks). My guess is that they're small enough quantities that the high rate passes unnoticed because the total fee remains low.
Im not sure that this option means that you dont want FRR swaps. For me it means that you want to take swaps at FRR price and i think that FRR for receive swap is another percent value since it wouldnt make sense otherwise. So one would create an FRR at the FRR for actively given swaps on the green side. So probably something way below the 0.11%. It really would be strange if its another way. But when i think about it. Im sure it isnt that way. Most users dont even have this option checked i think and still the FRR wall is eaten a bit often.
Might be wrong though. Staff?
Edit: Oh, and yes... i think most users dont care about the rate of swaps they automatically took. Its simply mostly in the same area.