How are you checking the compression , with a gauge or just by feel ?a good engine needs more than 90 psi to achieve optimal combustion , tested with a compression gauge at wide open throttle accumulated during 6 to 8 compression cycles.
The exhaust needs to be un restricted .
The cylinder does need to be wet , not dry ,but not flooded.
Things that can cause loss of compression
Worn or stuck rings , check ring end gap .it should be more than .002 but less than .010 , ideally. .003 to .007 .
Nicasil cylinders don't wear out easily ,but they do loose plating sometimes and it would be easily noticed when inspecting the cylinder.
If the engine is run too hot the oil will flash off and create a dry cylinder effect ,the oil actually seals the ring to the cylinder ,without it the seal is lost and so is compression.
So , I would check the following
Wet the cylinder and see if compression returns to normal then check for proper oil mix and or engine overheating.
If it does but only temporarily ,check ring end gap and cylinder surfaces
If it doesn't check for , cracked or burned through piston , cylinder surface damage .
The usual causes are overheating the engine in almost all cases.