I too hoped for a ffvii type of materia system when it was announced to further your idea I think they should include the 'master' upgrade too where when the materia drops its at lvl 0 with base stats and as you win fights the lvl slowly increases to maximum at which point it has full stats you could twin it with the same type of materia to acheive a lvl 2 version with higher base stats etc etc. Make it so only un-levelled materia is sellable and give a decent chance at failing the lvl up but also keep the crafting part just increase the success rate on getting multiple materia on one piece of equipment.