I've seen a lot of people questioning the decision the devs made to lose the base item if the attempt to slot 2+ materia fails.
Let's step back and look at this from a systemic viewpoint, before looking in detail at how it will affect an individual player.
1) The materia system adds a sink for NQ items. By converting NQ gear into materia, excess NQ items can be drained from the economy. However, this only works if materia has value. This remains to be seen, but looks to be the case.
2) However, the raises the specter of the materia market quickly saturating. Thus, a mechanic that allows excess materia to drain from the system is introduced. By allowing up to five materia, with decreasing chances of success, and loss of all materia on failure, these attempts to achieve 3, 4 or 5 materia will drain excess materia. If materia gets too plentiful, and prices drop, people will buy them up and burn them attempting a highly-slotted piece of gear. This prevents materia saturation.
3) However, the HQ item market has no sink in this system. That is, once an individual player acquires an HQ item, there is no incentive for the same player to ever acquire another of the same HQ item. Once every player (that wants one) acquires the HQ item, the market for that HQ item stagnates. By introducing the mechanic that the HQ item is lost if failing to slot 2+ materia, the same player has a motivation to acquire additional HQ items. This prevents the HQ item market from stagnating until all said players have HQ items slotted with five rare materia.
Now, to look at the situation from the individual player's perspective.
I understand that many players want to go straight to "best gear", but this doesn't provide much longevity. Instead, this system promote an "incremental" approach to gear improvement.
1) A starting player can begin by purchasing an NQ item, and customizing it with a single materia. This is cheap, and 100% guaranteed.
2) Having this item, the player can buy another NQ item, and then attempt to slot it with 2 materia. If the 2nd materia fails, the player has lost some gil / time, but still has the original weapon. However the probability of 2nd materia failing is low, so two attempts are nearly certain to generate an improved item.
3) Eventually, the player buys an HQ item. Now, the player must assess the HQ item with the best materia they can add, against their current NQ item with "x" materia. Given that current +3 items essentially have the equivalent of three materia (+attack, + accuracy, + critical for weapons) (+def, + m.def, + eva for armor), an HQ item with 1 materia is roughly equivalent to an NQ item with four materia. Thus, the player may take the small risk to attempt to slot a 2nd materia into the HQ gear or not.
4) If the player sees a second HQ item come available for a reasonable price, she can buy it, and attempt to slot 1 or 2 more materia then is in her current HQ item (depending on her risk tolerance).
Conclusion
The system provides sinks for NQ gear, HQ gear, and materia. It promotes an incremental growth model for gear development, contrasted to the current "wait and go straight to the end" model that is currently in force. Ultimately, it's success/failure will depend on how the community ends up utilizing it.