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Xp loss makes you want to win in both PvE and PvP, losing will result in xp loss and, if you really suck, delvling. Xp loss should be big in PvE, because if you die to a mob you seriously suck. You just fail at pulling or maybe even at playing your entire class. In PvP, death penalties should be implemented, but not as bad as in PvE. This way you will think over all your actions, you'll make sure you don't die, which adds a thrill to the battles. Of course, it is possible to get killed by somebody who's higher lvl than you, so that's why there should be a lower xp loss.
Oh and delvling makes you more money for your next lvl, so it's not that bad ;p
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