The main problem for me is that once you got your challenge log done, there's absolutely no means of progressing with the levels in a reasonable way. Killing monsters for xp or NM for xp is not efficient at all.

Also I think losing levels with deaths is a bit too much. I think a good medium would be to yes, lose experience, but not to the point of actually crossing backwards to the previous level. Just losing xp without it would already be a big punishment to let you be more careful with what you do.

Other than that, the worst flaws of Pagos they actually acknowledged and fixed on the following instances.