If a fight is purely magic damage, you won't be able to use the -10% debuff. Even if it has autoattacks, you can't apply it reliably and certainly not with the precision to guarantee it will be up for meaningful damage.
Against a physical raid boss, Dark Dance is worth roughly 6% damage reduction and is extremely unreliable due to only providing 30% additional parry chance. It is effectively only useful for lowering fluff damage in between big hits, which in this game is largely trivial. Big, reliable cooldowns are intrinsically more valuable in the end game than these kinds of high uptime low effectiveness cooldowns. Over the duration of the fight, it might save your healer a handful of Cure 1s, but it can't be relied upon to help you survive anything crucial. If you use it on cooldown, it's worth a whopping 2% total average DR over the course of the fight.
Paladin tools vs Physical:
Sentinel (40%)
Rampart (20%)
Bulwark (Worth ~18% additional average DR, and significantly more reliable than Dark Dance.)
Sheltron (30% for 1 attack each 30 seconds)
STR down (Uniquely brought by Paladin)
30% Convalescence
Foresight (~5% DR)
Clemency
Stoneskin (Effectively +10% EHP for one hit)
Divine Veil (Effectively +10% EHP for the rest of the party)
Hallowed Ground (10 seconds of invincibility)
Natural block chance (~5-7% average damage reduction)
Natural Parry chance (~2% average damage reduction)
Paladin tools Vs magical:
Sentinel (40%)
Rampart (20%)
30% Convalescence
Clemency
Stoneskin (Effectively +10% EHP for one hit)
Divine Veil (Effectively +10% EHP for the rest of the party)
Hallowed Ground (10 seconds of invincibility)
Dark Knight tools vs Physical:
Shadow Skin (20%)
Shadow Wall (30%)
Dark Dance (~6% average damage reduction, low chance of actually doing anything)
Foresight (~5%)
20% Convalescene
Living Death (Still requires healing)
Natural Parry chance (~2% average damage reduction)
Soul Eater healing (Varies depending on gear/spec/DA/Crits. Not gained when AoE, Power Slash, or Delirium combos need to be used)
Dark Knight vs magic:
Dark Mind (30%)
Shadow Skin (20%)
Shadow Wall (30%)
20% Convalescence
Living Death (Still requires healing)
-10% int (Can also be provided by monk)
Soul Eater healing (Varies depending on gear/spec/DA/Crits. Not gained when AoE, Power Slash, or Delirium combos need to be used)
There is no fight in the game that Paladin isn't more than capable of handling with their toolkit, both magical and physical.
I would say that DRK has a noticeable edge over PLD when it comes to magic heavy fights, but it isn't really a huge gap assuming the Paladin knows how to take advantage of their kit. Paladin has an ENORMOUS advantage over DRK in physical-heavy fights, and a Dark Knight MT's marginally superior DPS doesn't make up for the difference.
In terms of DPS, Paladin in Sword Oath isn't much behind the others. In Shield Oath, yes, their damage is a bit low. I think the rest of their kit more than makes up for the lower DPS - it isn't a hindrance to progression for a competent group. It may make them less desirable for farm parties as people start to overgear content, but I find it doubtful it will ever reach the point that it becomes problematic since their hardiness will directly translate into more healer DPS.


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