a
I really think they should take away the flash return rate concept. Every lending offer / borrowing request should be either limit order or market order (ie. hitting up the lowest available lending offer or highest borrowing request).
The FRR does help dampen the sometimes crazy swings of the best interest rate as provides a form of mid-market rate for the lazy.
The situation is a bit asymmetric though.
In an up market, traders are at an advantage because their default settings is to pick either fixed or variable rates, whichever is lower, and they can sometimes snag some FRR offers when the rate lags. On the other hand, lenders have to decide whether they want to (auto-)loan at fixed or variable rate, but not both.
This causes the situation where offers are either taken at a suboptimal rate or not at all (since there's a better offer on the other side of the FRR/Fixed choice).
It would greatly help if FRR had some other form of incentive, such as lower fees or liquidity guarantees.