Couple things here...lipo's dont really "drop off " in power, not like nihms. They will cut out, plain and simple. If you're dropping 50% in power, then you have other issues.

Check your ESC settings again, obviously make sure you're in lipo mode and as for cut-off, really 3.4V is ok as you dont want your lipo to touch on the side of 3.0V which is the bare minimum. Some like more volts to protect the lipo which I can understand, I run 3.5V which is pretty safe IMO.

Check your ESC, motor and lipo temps to see if you're running too hot....if anything touch the side of the motor at least and see if you can hold your finger onto it for at least 3 sec.
To me it sounds like its a heat issue.