There's been barely any FRR swaps taken in days, so it would seem that the fixed-rate market is in fact setting the going rate at the current level, and the FRR as a system is mostly just taking a giant chunk of supply and keeping it safely tucked away out of sight so that it can't wipe away the limited amount of demand.
And this with the price of bitcoin finally showing some signs of rising... can't tell if that's a collective statement of "Bullshit, it's going to be back to bear-town any day now", or a sign that even with an uptick the supply of funding is outpacing the need for funding, or just a result of people saying "Trading? Not right now, it's christmastime".
Just because FRR aren't being taken doesn't mean they aren't contributing to supply. As I stated earlier, the Fixed rates are pegging themselves to FRR (minus a tiny amount to put them TOB), but FRR is pegged to market rate (determined by fixed rates). Just having all those orders on the books drives down price, just like any other order book. If BTC price was rising, you'd expect lending rates to increase. The simple fact is, FRR are lazy investors and they're driving down rates, just like lazy whales always do. Hell, I wouldn't mind if Bitfinex just scraped FRR. It sucks as a borrower, too, because your rates are always fluctuating. As a lender, it sucks because you'll never get your order taken.
It is impossible to "peg" yourself to the FRR...that was the solution I had offered, to allow a delta value so you could peg your order to the FRR but choose to price it more aggressively. You can place it lower than the current rate, but that rate can change, and if you want to manually adjust it...you can do that as frequently as you want. If you say, "but I can get a bot to do it", I agree, and you bot will always compete against the other fixed rates, as well as the FRR. You have active traders using fixed rate, vs people who are not managing it directly. You think that by forcing the people who don't care to actually start caring it would lower competition?
As it stands, noggin-scratcher is right, there is more and more swaps chasing a fixed (or even decreasing) amount of volume. I am not sure if it is christmastime or people gun shy about a bull trap, but at the end of the day, there is a finite amount of demand, call it X. The people who choose to lend for the lowest amount, regardless of FRR, until X is exhausted are the only ones who will get ANY return. If you remove the FRR, you either have no change, because you will still compete against the other fixed rates for the same fixed amount of trading volume (as noggin-scratcher pointed out, very few FRR swaps have been taken), or, more likely, the money that is currently sitting on the sidelines just pushes rates lower.
I really do have to agree with one post, which says that because a rate taken at the FRR cannot itself influence the FRR, we have a poor feedback mechanism. We are working on a change, but with the entire margin system and quite a few users who currently have funds in the swap market, caution is appropriate. We also are really focusing on this upgrade, and I made a pretty big milestone today, so I am hoping to be able to announce more soon. Anyway, I agree with you guys that the FRR is NOT implemented in the best way, but I don't think that some people are looking at it objectively. If rates are higher, we make more, so why does it seem like we are forcing rates lower, especially given that it seems most traders are relatively insensitive to the swap cost? Because our core business is being the best bitcoin exchange we can be! The swap market exists to facilitate and enable margin trading. As opposed to trying and boost rates, we would rather just let the market do as it wills, and let the rates be set naturally, even though it may not be as profitable in the short term, we would rather that it is a somewhat good price discovery method. I mean, at any point, we could have just gotten rid of the "market" portion and made it into a fund as was suggested a while ago. That is not our goal, and not what we see as the purpose of the swap market. It exists to facilitate traders, and whoever is willing to accept the least return will get their swaps filled (or their bitcoins bought), that is just the nature of the market.
So, this is a little longer of a post than I had intended, and I really don't want to fan the flames on the FRR issue, because we are going to change it, I understand what has been said, and if you look at things from an objective point of view (not as a person seeking the highest return possible), I think you will see that markets are useful at setting prices, and we'd rather let the price be discovered organically instead of having some sort of agenda. Even the FRR, it may not be great, and it can definitely be better, but it is very simple, and based on numbers that we don't create. It was originally conceived to hopefully allow liquidity providers the ability to benefit from rising markets, and at the same time, ensure a constant supply of swaps to fuel trading. It has done that, but it is showing some cracks at the seams, and those are what we are addressing.
So, Happy Holidays to everyone, I hope you guys get lots of bitcoin for Christmas, Hanukkah or whatever festivities you celebrate! Rest assured, we are working on some really nice new things for 2015 that will hopefully reward you guys for your loyalty and patience.