Quote from: pgp on October 11, 2014, 03:05:58 PM

Quote from: DoubleSwapper on October 10, 2014, 09:59:39 PM

Quote from: noggin-scratcher on October 10, 2014, 11:29:19 AM

I've come to really dislike the Flash Return Rate. I'll try and be articulate about why...

The problem as I see it, is that it's currently the only option for offering swaps at a variable rate, and the only option to offer automatically at a rate that adjusts (somewhat) to market conditions. If you want to be fairly hands-off and automated about things, it's kind of the only game in town. It's normally nowhere near an optimal rate to be offering at - being either too high when rates are decreasing and everyone jumps in front of it, or far too low when rates have headed back up (see also: right now), but without any other auto-rate options it gets heavily used.

So we get, most of the time, an enormous wall of offers all placed at the single FRR, making it very difficult for the rate to rise higher - the FRR keeps slipping down as the average diminishes, until there's enough pressure to chew through it all at once (or possibly by 30-day swaps being taken over the head of the FRR-wall) and the rate suddenly spikes upwards, dragging the FRR reluctantly upward with it.

So that's my thesis - FRR is a magnet for a giant heap of offers from those who don't have the free time required for manual management, or who want to avoid being stuck in a poorly placed fixed-rate swap, and its effect on the market is to produce that weird sawtooth pattern in swap rates, with sharp increases followed by slow deteriorations. I really wish there were better options for an automated rate. Or even just more options so as to spread the pile out a bit more. If we could set offers at a fixed offset away from the FRR, or have fixed-rate offers that are automatically placed at a certain 'depth' into the book of offers, or have a tracker rate that's slightly more responsive (a weighted moving average of recent fixed-rate swaps rather than a simple average rate?)... then I would be so happy.

Completely agree. I've wrote about that as well. The swap order book is so thin that these out of the blue 200 k to 500 k offers churn through the order book completely because nobody bothers to put in any offers above a +1 mio sometimes +3 mio wall that the FFR inevitably creates as soon as long demand decreases. When the rate is high then the lagging FFR comes up and puts offers far, far below the lost offer at that time which doesn't make sense at all.

Hi, All,

My name is Phil and I am also associated with Bitfinex, and though I never post on btctalk, I wanted to address this issue and get more feedback. FRR is calculated as the volume weighted rate of all the open fixed rate swaps, so naturally it will lag the inside market and this, of course creates problems for liquidity as it's the only real mechanism we have for auto renewing swaps. We have spent some time thinking about how to improve this, but frankly haven't arrived at anything that we like better. I will say, though, that we can certainly make it better by offering various embedded algos with user specified parameters, the problem is that we don't want to make it overly complicated, either. So, the right solution has to be one that is simple and easy to understand. So I will ask all of you. Specifically, how would you improve it? We recognize the need for improvement - so your suggestions are welcome!

Just to confirm, you are not including the FRR swaps in the swaps that are averaged, correct?