Why no one talking about how 5min voting window creates the issue ?

Changing the curve to reduce difference and efficiency of 3min voting against 5h voting could help. Not sure how difference math works, but could be just hard coded to not exceed x% difference between early voter and late voter...
Basically flattening difference between efficiency on timing, and creating more fair competition for manual voters. System is designed for bots and this proposal seems like penalizing both parties not just bots, and completely ignoring flaws in design.

sign up with an auto-vote bot and collect your curation rewards (somewhere between 8-12% APR)

up to 16-20%
dlease ratio +2-6%
it is actually 14% on leasing so more than your estimation for curation rewards :)

The problem with this is that auto-vote bots are generally programmed to vote for a set of “known good” authors

Can be also done with unknown authors. Much more efficient probability based approach not "name" approach, like Marky mentioned above it's increasing average rewards on posts by adding multiple small votes. Increasing average +1-2$ on posts that others regularly vote(probably with simplest voting with hive.vote) but with better(moving) timing.

I am afraid it would make many passive investors just sell, 14% passive profits are good enough to keep people holding. With 4% it would be better to lock USD stable on lending protocol...

Penalizing was mentioned. I think it is possible to penalize voters on set of “known good” authors, or on probability of high rewards with loss on penalizing account. Am not going to describe it here tho :)
And it would penalize authors too, cause if curators earn less, they going to switch votes. But this could force people to shuffle more.

Still in my opinion voting window is main issue here, and decreasing curation rewards, will decrease hive value.

I mostly keep my hive liquid cause it is more efficient to rent power than power up. Only reason for me to power up would be witness voting 😣 with this change there would be no reason to rent, and millions of passive hive investors would just sell...