If you want to attach a PvE carrot-on-a-stick mechanic for PvP that keeps people playing longer, then try some neutered form of item loot. Unlike exp loss, there is some reward involved there (for the victor) in addition to the penalty. No one cares if they kill someone here and cause them 1% exp loss. It's like a really shitty form of griefing. If I ever want to accomplish the same thing more effectively then I'd just drop a train on them.
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