Imp makes a good point here gentleman...however i think maybe we should test if he really is a masochist to you know for authenticity purposes. Plus it could let us peer through inside more of his diabolical character.
Of course he's only a masochist in the sense that our character percieves him as one.
He's an emotional sadist.
Squid, octopus, cuttlefish, and all other members of that family have skin that contains chromatophores, and are able to change the color of their skin by tiny muscles that adjust them. Mammals have tiny muscles, called arrector pili muscles, which allow our hair to stand on end. Ever felt goose bumps, or the sensation of 'your hair standing on end'? Moods and sensations cause those muscles to act in mammals and the not-quite fishy folk alike. And this guy is psionicaly adept. So his body can react to the moods and emotions, not only of himself, but of those around him.
We made him a monster. He is one, oh boy is he one. He has monstrous senses. Mikey likes it, to quote an ancient commercial, where a gang of kids forced one of their number, known to be a picky eater, into trying a new type of cereal. Their plan backfired, because Mikey liked it. But we wanted Joe to like this. He does, so he doesn't get punished for that, right? We do have standards, and I say he fits them. Our plan did not backfire.
Feel free to test his apparent masochism - just in non destructive ways that are not especially distasteful for him should he prove not to be a masochist - and in a fashion fitting for a character under our power who is probably more than 10x smarter than our own character is. He is ours, and loyal, and making him think this is a bad deal for him is probably a seriously stupid choice if we made it.
Why can't he be plotting our fall? Why can't he be thinking about how he will kill us and take our place? I just don't trust him. Really, even is he is useful, the risk that involves keeping him with us is not worthwhile.
Consider that smarter then us is not bad, if he is on our side, even in a slightly twisted and personalized way. Does he want to follow someone instead of having to be a leader? Does he like things the way they are/the way we run them? Is he content and comfortable, amused and pleased much of the time, and when he's not, is it not because of our direct actions and intention to make him uncomfortable?
If the answer to these questions remains yes, I think we have mutually assured satisfaction here, and no actual problem with Psysquid - or him with us. Lets not transform our creation again into an effective enemy, or even just waste his potential. I for one think he's awesome and want him to remain on our team.