That would be better, but i still can't get behind the idea of gaining killing power when your opponent does something right and hits you. No matter how its applied at the end of the day it is still a crutch comeback mechanic that makes being worse than your opponent less of an issue.
Rage started in Tekken 6? and it's basically a comeback feature and punishment for being a player who can't kill well, combo well, etc. The main issue is that in Tekken, one mistake can cost you the entire round which is supposedly being fixed in Tekken 7 with parries, powering through moves, etc. while in Tekken 6, it was basically juggle and ping pong with the wall. That sort of works in Tekken as it makes it feel like you can punish hard.
In Smash, eh, it needs to be implemented differently and modified. It could be considered a way to make it so early deaths don't happen. Could you imagine what it would be like if Lucario, Ganondorf, Marth, Ike, Bowser, and DK were constantly in rage? Yeah... At the same time, could you imagine if Ganondorf never was in rage? He's strong, but there's a point where even he gets overpowered and overwhelmed. If anything, rage could have existed only for heavyweights.
If rage only affected damage, it would work differently as knockback is scaled through damage. That might be worse than rage incrementally increasing knockback. There could be individual caps, growths, etc. as well. Or it could affect how moves work, so a Bowser in rage would gain more super armor and that's it while a Ganondorf in rage attacks faster, but not like all his moves come out below frame 5, or perhaps end lag being reduced.
The fact it's a new feature in Smash, but an old feature from Tekken is an issue. It's basically unexplored and we're the guinea pigs. It works for some characters like the heavyweights, but for other characters like Sheik and Lucario, it's not working so well; either it's really good or really bad.
I can't stand Sonic. Playing against him just doesn't feel like playing Smash Bros. It just feels like the match turns into this weird read-based guessing game. Sonic's ability to run away and come back in with two fast identical moves or a dash attack/grab is just too much of a speed-based mix-up. I don't even know how to "fix" him other than taking him out of the game entirely.
As for Captain Falcon, his recovery is so bad that he's somewhat balanced based on that alone. I wouldn't mind if his dash grab was less ridiculous though.
Considering Sonic isn't Nintendo, it makes sense why he plays differently just like how Mega Man, Pac-Man, and Snake felt different to everyone else, especially Mega Man.
His power is a main complaint, but if you make him too weak, then he becomes Brawl Sonic. There is a balance, but I don't know how it would work and if the developers would even bother. Up Smash, Side Smash, and B-throw are the main offenders where Up Smash lingers for a long time, Side Smash is fast and has a lot of range - I think it's disjointed -, and B-throw while nerfed, people still complain about it. Sonic shouldn't be a powerhouse that's faster than Captain Falcon, but he shouldn't be weaker than Sheik as that would just be horribly sad and horribly annoying.