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Multiversus uses rollback netcode as opposed to delay based. Rollback means that the game tries to "predict" what will happen based on recent actions, and "rollsback" the action if it predicted wrong, aiming to keep the game state in sync for all players. When it works, it means you play as if you were playing locally, with no lag or delay no matter the ping, and might see a small 1-3 frame hiccup occasionally. Far better than having all actions be on a delay because of ping.
One of the caveats to rollback (all fighting games really) is framerate requirements. If all players are playing as if there was no lag, what happens if one player's game is running slower than the others? In old delay based networking, you'd see them lagging out and/or teleporting around. Rollback however is trying to keep all game states in sync at all times, which means the game can only run at the slowest player's speed.
So now, knowing that Multiversus is experiencing VERY bad performance issues on consoles, and not great performance on PC either, you can see whats going on. In the high likelyhood one person is running the game poorly, everyone's performance is tanked to match. This is why people report less sluggishness in PvE and 1v1s. Less chance someone is tanking the framerate for everyone else.
This is also why having a fighting game run at a consistent 60fps is CRUCIAL. Both delay and rollback netcode fall apart when one player's framerate tanks, something PFG didn't care to think about.
This game, and Brawlhalla, use Server Based Rollback, so, in most cases, lil timmy lagging will not affect your performance at all (connection and frame rate wise). Delay based netcode would not see people teleporting around on lag, that is actually what happens on peer to peer rollback, as it corrects game state, on your screen, the enemy will appear to jump into the correct location. Delay base netcode would...delay inputs, to have everyones game state match.
The issue with this game is simply that they have implemented Crossplay poorly.