Quote from: Sukrim on October 23, 2014, 08:17:26 PM

Well, I personally like the FRR (I'm lazy...), it was already changed from its previous iteration and surely can be tweaked even more. I wonder which factors to still use other than the current swaps in use to make it react even faster? Weighted average of the fixed price swaps of just the last 24h? 1h? 12h?

After all, the FRR was already "accelerated" significantly after traders complained that the old calculation (which was something like the last 13 days of FRR + current swap rates or so) went down too slow after a spike in demand, making their positions expensive. Since positions now can be comfortably swap their swaps, maybe a move in the opposite direction could be better? Make FRR react slower again?

I wouldn't mind that much if it were going away, then I'd have to invest a day or so to audit, customize + deploy a bot and that's it.

I would think a method along the lines of what 0x3d proposed. The swap market is not controlled strictly by supply and demand as the leverage limit places a cap on individual demand. It is controlled more by sentiment of the Bitcoin market; this is what frustrates fixed rate lenders so much. We can look at the Bitcoin market see the price going up and know that the demand is going to be there we but cannot do anything about it since the FRR is sitting there blindly filling orders based on the mean price from thirty days ago. Bitfinex used to have a Sentiment indicator. It was far from accurate but using it would make more sense that using any direct historical data.

As the Sentiment goes up, the rate rises, as it falls so does the FRR. The problem is how do you measure that? Fixed rate lenders watch whatever they consider valid market indicators and make a decision based on that, there is some intelligence involved. The FRR, not so much. It has to be based on something available and measurable. Of course, if someone could come up with a reliable method to predict the market it would make more sense to be trading than lending.

I was wondering, what if the FRR used a Delta (the math definition, not the Bitfinex)? Bitfinex could take the last 15 min Bitcoin price range and matched it to the price change and volume of the historical Bitcoin price data. The time frame would then be cross referenced to the historical swap data. The historical rate change would then be used as the basis for modifying, not determining the FRR rate. If the Bitcoin price is changing, the swap rate would change in a historically predictable way. If done properly, the rate change could only be gamed by the traders and only to the existent that it agrees with history.

The FRR would rise and fall much more quickly than now but it would stabilize much faster. It would be a trailing indicator but also be based on past market performance. I think everyone knows the perils of using the past to predict the future but this method would isolate itself slightly since it is using the near instantaneous (15 minute) price change to determine the corresponding historical swap rate change from a point in time disregarding the surrounding historical market tread. It couldn't be worse than the current FRR calculation which is based on the most simplistic (and statistically meaningless ) 'average' available.