What are the current lending rates?

Someone figured out how to do this with the USD.  I think the bug was that you could reserve for less than one hour before you were charged interest.  The person/group would reserve 1-2M and let the rate rise.  Before the hour was up the reserve would be returned and then it started all over again.  It showed itself by 1-2M in swaps being taken and then being dumped back approximately one hour later.  Are you seeing that with the BTC swaps?

Bitfinex fixed this quickly once they were told about it. I doubt it, but maybe they didn't apply the same fix to BTC.  You might want to go directly to support with your concerns.

Wow!  Just absolutely, unbelievably, freaking WOW!

You win, I give up.

Wow!  Do you really believe this?

Killing the patient is analogous to closing the swap market and no one has suggested that. Removing the FRR is not killing the patient, it is removing the disease.

The patient hosts the disease.  Removing the disease does not is any way remove the host.

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.

This isn't going to end well, but I'll play for a while.

Let's see how 'basic' we can get this; adequately resolve the following and I will agree to your statement.

You have a hole in your tire.  What is the best way to improve 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.

Yes, but a free market does not have de facto, system forced price point does it?  Something you have steadfastly refused to fully address.  This 'market' is controlled in the same manner that Fed exerts control; by adjusting rate of the single largest pool of money available.  The Fed has the Discount Rate and Bitfinex has the FRR.

I'm not going to debate this anymore.  You originally ask for ideas on how to improve the FRR.  The general conclusion was to best way to fix it was to remove it. It was not the answer Bitfinex wanted.  If I look at the situation from your point of view I can see the somewhat perverse logic in it.  The FRR serves Bitfinex well and hopefully soothes some guilt you have about the treatment of the leveraged traders. 

So be it, the FRR is not going to go away, but, I would ask for some intellectual honesty on Bitfinex's part and quit trying to portray the swap market as even remotely 'free'.

Until the market crashes is a way that Bitfinex didn't fathom or that the swap engine cannot keep up with and you lose half your principle.  Everyone seems to forget that bit.

Well that's our answer.  Game over.

The fee increase was suggested earlier.  There was no direct response from Bitfinex.

I'm open to suggestion.  Appeals to logic certainly do not seem to be working.

I don't know if I would use it.  It would be an interesting option for 'fixed rate' lenders to compete with the FRR.  Of course, if Bitfinex applies it to the FRR or only allows the option for the FRR it will be the death of fixed rate lending.

I did comment on this earlier.  My concern would be that the lender is getting the lowest rate when the swap is most vulnerable (the trader is losing).  Of course if swaps are as risk free as Bitfinex purports them to be, I would not have any philosophical issue with this.

With everything Bitfinex has said so far, yes this is normal and the FRR has nothing to do with it.  The only issue is that rate calculation, not the FRR, needs tweaked.  Unbelievable isn't it?

I am getting so frustrated with this that I am going to have to drop out before I say something I will regret.
 

The cost of swaps has a minor role in the demand for swaps.  The demand for swaps is driven almost solely by the price movement of bitcoins, it is not dependent on the swap cost.  If bitcoins are going down, no trader is going to show an interest in taking a swap even if its 0.0001%.  The swap market is not driven by supply and demand of swaps until the price or perceived price of bitcoins is rising; it subservient to the whims of the bitcoin market.

Once that demand has be created, by the bitcoin price, not by the swap price, the acceptable swap cost is dictated by how much or how fast a trader thinks the price of bitcoin will increase.

To put this as simply as possible, market for swaps is driven by the rising price of bitcoins, not the cost of swaps.  Can we agree on this?

Are you proposing including the FRR swaps in the calculation and not just the fixed rate swaps?

I don't see how your calculation will raise the rate due to more FFR swaps being taken. I think the FRR would get a one time boost when the new formula is implemented and then will proceed to drop just as it does now.

I would like to put the same question out to you (and every other swap lender): Can you think of any way to force/compel/prod Bitfinex to address this issue?

From my vantage point, there has been a very good discussions of the FRR, it's effects and possible alternatives over the past few days. Bitfinex has been noticeably absent.  If they have a viewpoint, even if it is that the FRR will remain unchanged, it would be encouraging if that would say something.

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?

What's wrong with a boring fund that makes 100% a year?  I would be quite content with boredom like that.

Convert my 'essay' to a fish story?  Let's try this - A SWF would own every dock, pier, boat, net, rod as well as the ocean.  If you want to fish the SWF is the only game in town.  When you want to fish, not only do you have to rent the equipment from the SWF, you have to put the full value of the equipment down as a deposit and pay any expenses up front and out of pocket.  You might capsize and die but the SWF is sitting on the safely on shore with no way to lose.  If you survive, the SWF will let you keep any fish you catch.

How's that?