Regarding “if a user submit a model that’s strongly correlated with the metamodel, have the same expected return of correlations, but has a much better Sharpe at the same time”. The model as graphed is basically a no-risk near-flat line. If you had such a model (basically impossible, especially if the metamodel was really was going up and down like that), then why would you even be thinking about MMC? The MMC payout will be optional (and according to MikeP must remain optional for game-theoretic reasons), and so if you had a model like that you’d just leave it on the normal payout system and you’d do fine. With compounding, you could retire on such a model.
MMC doesn’t have to be all things to all people – I don’t think it is a problem that some models just aren’t going to do well under MMC scheme since you aren’t forced into it (especially if they do well under normal scheme). So the question isn’t really can we think of scenarios where MMC payment is going to be worse than regular payment – yes of course we can, so if we have a model like that (and can tell it is a model like that), we simply wouldn’t opt for MMC payouts.
But you are getting to something here that I think is interesting, in that what a “stable” model is (in terms of getting high scores and stable payouts) is going to be different depending on which payout system you are opting for. So we know what a main score stable model looks like – it is right in an absolute way about the same amount most of the time (sometimes at a high level compared to metamodel, sometimes lower – like in your upper graph). Whereas an MMC stable model (in terms of getting around the same MMC score most rounds) will probably have main scores that are all over the place and the idea is to always be adding value to the meta model. And that may turn out to be an easier proposition. This does NOT mean it has to be “better” than the metamodel (on average), I think it is misleading when people say that. Probably nobody will be better than the metamodel over time – my guess is that it will be impossible to achieve that (as long as we have a sufficient user base submitting many models). The idea is not to have a model be better than the metamodel (which of course includes that same model), but that the metamodel becomes better with your model in it vs without it.