Thank you for such a detailed comment!
In fact, the boxes don’t shrink in water (they don’t shrink at all). Instead, you and the gems are slowly getting bigger, and the newly-spawned boxes are bigger as well. Now I know it’s not obvious at all, I think the size should change in steps which would be indicated by an animation.
Regarding the physics - yes, it’s indeed janky. Buoyancy turned out quite easy to implement but I really struggled with the character controller - the dynamic one was too floaty so I ditched it, and the kinematic one interacts weirdly with rigid bodies. Also, increasing the player’s size (along with the collider) does not help.
The ship is not supposed to suddenly sink, this was just another physics issue. This happened to us as well during development but I couldn’t debug and fix it in time.