I feel like you're ignoring the majority of players in this game. You have a point if you only consider huge villages, but if you take into account small villages and hermits (which are still a huge chunk of the player population) then it all falls apart.
Let's analyse your suggestion and see why:
MightySheep wrote:People who fuck up in pvp fights and get KOd are back on their feet by the next day. They just get given new gear and heal their wounds and its like nothing even happened. Losing has become completely inconsequential.
As said above, for a huge village losing some gear is nothing. For a smaller one, or worse of hermits, losing their combat gear might be a big deal. So it's not inconsequential for most people.
MightySheep wrote: It sucks when you know there are people with better stats than you who have gotten KOd so many times yet they are still ahead because there is no consequences anymore.
Ok, that's just you being mad because someone else is better than you at raising their stats.
MightySheep wrote:I wouldnt even be opposed to perma death being removed from the game.
Great, but that's another topic. I agree permadeath is currently mostly punishing for newbies and/or happens due to crashes and such, but that's a whole different discussion.
MightySheep wrote:If theres no consequences to fucking up then animals arent scary any more. Mining isnt scary.
Quite a weird thing to say right after saying you're ok with removing permadeath.
MightySheep wrote:PvP is anticlimactic and dull
MightySheep wrote: If failing isnt punishing then success isnt rewarding.
Fight for meteors prove you wrong. If you fail, nothing bad happens. If you win, you get rewarded by getting the meteor.
Failing being less punishing only means more people will try it. If you can easily get killed or if you lose stats, less and less people will try/do pvp because it's not worth it for them.
And this brings me back to my initial statement. You seem to completely ignore everyone who isn't part of a huge village.
To someone living in a large village, being constantly boosted, even losing 5% of their stats is something they can easily recover from. But for someone who doesn't, it's extremely punishing, and for what?
Adding something like this would only make sprucecaps' life more miserable, while being only a minor inconvenience for the top PvP players who can easily recover from it.
I do have a counter proposal, which might interest you: completely removing KO protection from anyone who buys the rage skill. That way only pvpers would be affected, and you could easily kill a KOed enemy, which is punishment enough for losing a fight.