How about Everquest: Immortals based off the Highlander franchise...
1) Warrior-class only, with considerably increased HP regen, so that PVE isn't as much of a threat, only used as a secondary way to gain XP (see below). PVP melee damage increased so that PVP is the primary threat.
2) If your HP goes below zero, PVP or PVE, you just go purple/unconscious for a period of time, but you really can't "die". No XP loss or anything. Once you regain consciousness, your health is restored at the same regen rate but you have certain effects that reduce your stats/movement speed. Yes, this could create a series of chain "deaths" in PVE.
3) All players have a "behead" skill that pops every so often. This is the only way to kill someone in PVP. There is 100% chance this is successful against an unconscious target (see above), scaling exponentially down to 0% chance against a target at 50% health or something (maybe 10% at 25% health, etc).
4) From 2 & 3, you can show someone mercy by "killing" them by knocking them unconscious but not actually going through with the beheading. Not sure why you would do this, but it is an option.
5) When you behead someone, you gain their Quickening... i.e. all of their XP (and whatever levels you gain as a result). Some gnomish fireworks graphics go off with the winner as the target of the effect to represent the Quickening... the recipient cannot move during this time and has some sort of recovery effects that diminish movement speed and combat skills for a short period of time after. This is perma-death for the beheaded Immortal. The winner (or whoever) can loot their inventory. I'm torn as to whether these beheadings should be announced as a server broadcast or not.
6) From 5, you want to pick your battles closely... you don't want to win a battle by a hair and gain the Quickening, only to be beheaded by someone else while you are vulnerable. One strategy could be to lie in hiding, waiting for such a battle to occur, only to cheaply pick off the winner while they are recovering from their Quickening.
7) Some zones/areas in the game are designated "Holy Ground" and battle cannot occur in these zones/areas.
It only sounds fun to me because I am a fan of the Highlander movies/series.
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