A death penalty means nothing if you can't loose a level also.
The whole exp loss in FFXI would be a joke if you could not loose a level. The real punishment was loosing the level and all your shiny 75+ gear.
Unfortunately in this game it would not work since gear is not level restricted (or not yet) and loosing a level would not have such a drastic impact on your performance as it did in FFXI.
I have said it many times, learn from FFXI, there is no @#$% reason to re-invent the wheel.

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