Quote from: QwertyCore on October 24, 2014, 02:54:26 PM

Quote from: Sukrim on October 24, 2014, 10:43:55 AM

USD swap demand goes up if the price goes down ("BTC are getting cheaper, let's buy more, TO DA MOON!") and it goes up if the price goes up ("It's_happening.gif"), it only seems to go down if the price doesn't change a lot over several days. Basing a rate on the price delta of the last 15 minutes is not going to model demand easily I'm afraid.

I'm still more in favour of keeping FRR as is and rather changing defaults or introducing more strict rules (e.g. FRR can only be set for 3 day durations max. so fixed rate swaps have more space to discover prices?). Also it might be interesting to know how FRR would look like if 30 day FRR is based on 30 day fixed rate swaps, 10 day FRR on 10 day fixed rate etc.

Swap demand does not go up simply because the Bitcoin price goes down. It goes up in anticipation that the price will go up, which is (presumably) more likely when the price is down. Traders are only borrowing the funds and with that the bitcoins that they 'buy'. The only way to make money with swaps not to hold the bitcoins, but to sell them for more at a later date. The 'TO DA MOON!' people are using their own funds.

The swap rate goes down when the price is stagnate due to lenders undercutting the FRR trying to get their money into the hands of the few traders willing to take it or replacing currently existing swaps for cheaper ones.

When the price plummets, the swap rate doesn't drop, it evaporates. Traders close their positions and return the money to the swap pool. In effect, the rate goes negative. Traders are choosing to lose money now so they don't lose much more money later. The swap can be 'sold' by the trader simply by closing it, they do not need to find a 'buyer'.

The 2, 5, 10 day swap rate would be interesting to look at. I reasons don't think it would work is that 1) swap duration is one sided, a trader can close it at will and is not required to carry it for it's full term and 2) a trader can jump from swap to swap without closing their position and with no penalty.

The price Delta might not work, but without the will of Bitfinex to explore it we will never know.

"1) swap duration is one sided, a trader can close it at will and is not required to carry it for it's full term and 2) a trader can jump from swap to swap without closing their position and with no penalty."

This is why they are paying you...they want the right to use your funds to enable a position, and they want the right to close that position early. In exchange, you get the rate that you select, or you can get a variable rate based on a metric that we provide. So, swap provider receives his agreed upon rate, trader gets the option to enter a position, but not the obligation to do so. If the possibility of early closure is very annoying, the rate should be higher to reflect this.

Basically, there is typically X demand for swaps, and Y supply. a situation where X is greater than Y is not usual. So, given the entire pool of funds in Y, if you want YOUR swap to be taken with a higher probability, you should price it lower. This "undercutting" thing is basic price discovery.
Currently there is around 1.2 million in requested swaps at rates lower than currently offered. The current "spread" is 0.0752% by 0.0806%, the FRR is 0.0844%, pretty far from the highest rate someone has offered to pay. I also notice that the shorter the term, the higher the rate demanded and the lower the rate offered, which is interesting.

I still feel like people aren't understanding the purpose of this market, to enable margin trading. It doesn't exist in a vacuum to enable passive investors to generate good returns, though I think that is a by product. So, it seems that many people want a "savings account", and while it is possible to try and use the deposit account this way, via the FRR and autolend, you will not do as well as someone who is actively managing their positions. You will have funds sitting unused, as is currently the case with the over 3 million USD offered at the FRR. So basically, the more you put in the more you can get out, but only in the context of what the market is willing to bear.