Quote from: QwertyCore on October 20, 2014, 03:56:04 PM

Quote from: DoubleSwapper on October 18, 2014, 07:34:56 PM

Hm, ok third post in a row from me but it's due:

I've been following the discussion about the FRR and I have to say it's fairly obvious at this point: anybody who defends the FRR in its current form and denies its influence on price formation in the swap market is fairly uninformed not to say outright stupid.

I'd recommed everybody to watch the swap orderbook for a day or two and you shall see, it's been especially obvious in the last few days. The amount of swaps is on the rise again and already fairly large relative to the low price and so is the swap rate. In the last three days we had several events where large orders pushed the swap rate into 0.25 to 0.6 territory. This normally lasted for a fairly short time and then went back to 0.08-0.1. Why? Because the muddafuggin FRR comes in, walls the orderbook off with a stupid 6 figure (100k to 300k) offer that takes hours to get cleared and incentivizes many impatient people to offer their money for even lower rates creating a feedback loop.
Of who's benefit is this? Who in their right mind would put a 0.1% offer on the orderbook when the current lowest offer is at 0.27?? It's stupid as hell and destroys a lot of potential returns for the lenders. Even the lazy fucks using this feature lose out on a ton of potential gains.
Normally these spikes are obviously related to manipulation but it doesn't seem like it this time. The orderbook seems to get genuinely thin because intelligent lenders realize the potential rates they can receive at the moment and are hesitant to put in offers at 0.1xx when they know the only offers that get taken quickly are either those below or at the FRR rate of death. And when the FRR wall gets torn down they can potentially offfer some money in the 0.25 to 0.6 region. This is unhealthy for the market and even makes it harder for the lenders to estimate their swap costs.

The swap rates should reflect current sentiment and swap demand but there is so much dumb money in the swap market combined with the lazypants FRR that we currently have a very, very inefficient market.

You and I are very much on the same page. Can you think of any way to force/compel/prod Bitfinex to address this issue?

I've already pretty much outlined my stance on this. I feel the swap market is mature enough and hosts a large enough amount of players to roll without any variable rate. This creates more opportunities for active lenders and leads to a more efficient price discovery. If a variable rate is deemed necessary I advocate a flexible rate that is orientated at the lowest offers of the orderbook although I see the problems and the possibilities for abuse there if the formula is not sturdy and well thought out enough. Something along the lines of the average of the lowest $50k offers of the orderbook.

At this point I'm not sure though whether BFX is actually interested in a more efficient (and possibly more expensive) swap market as they probably earn much more from traders willing to max out their leverage because of cheap swap rates.