I see. Even if you are using a dollar weighted average, with no limit on interest rates, you can create strange situations. Let's look at an example:
$50,000 lent total.
$49500 lent at 60% per year.
$500 lent at 88,888% per year.
Dollar weighted average: 948.28%
So, even a small 1% loan at a high interest rate can modify the average by more than 10x.
if a large portion of that 50 000 are VIR then yes
There is possibility for market manipulation here.
https://community.bitfinex.com/showthread.php/101-But-what-if-anyone-manipulate-the-VIR-making-a-loan-1000-USD-at-9999-APY check that and why wont work on the long run
A silly situation is he can create two accounts and lend to himself, of course there is large fee to pay then but theoretically the gain could still outrun the loss, if properly designed.
Another advice is to allow users to set their threshold rate, whether they're opting for VIR or not.