This is a great idea/concept. I like what it will do to the economy. First off it will promote gear of all types to be created not just the rank50 gear/weapons, also it will encourage continual items to be created, making it easier for lower level crafters to get a foot into the market.

Also think of it this way:
1) Get your level one weapon, rank up to 10 where you can equip a new weapon
2) By now your 1st weapon can be turned into materia, with no other real use for the weapon you turn it into materia
3) Find a crafter and craft your new materia into your new weapon to get a nice bonus
4) rinse and repeat until you get your final weapon

That is how the process would work, I hope.

Also some things to consider:
1) We don't know how long/how many attacks it takes the weapons to reach 100% (reg. weapons might not take long to reach the 100% while the rare/ex weapons might take longer if it is really strong)
2) Rarer weapons are probably going to have much better materia results so the time put into I hope would be equal to the reward


Some things I hope:
1) Let us see the materia result BEFORE committing to the materia conversation proceess
2) Make the materia worthwhile to stimulate the economy like mentioned about