With permadeath removed the only real benefit of KOing people is the loot that they have on them at the time. This loot can pile up and it begins to lose meaning as the world progresses.
Every world I end up with multiple cupboards of gear pieces that do basically nothing other than serving as backup gear pieces for my alts or whatever... And that's where salvaging could come in.
It would be cool to have a new skill called salvaging which could have a skill-tree similar to the metalworking or treeplanting skills. The skill would be used to retrieve some of the original item's resources while destroying the base item in the process. Buying the more expensive skills in the skilltree would return better yields from the item you choose to rip apart, but the returns would never be equal or greater than the original item's cost.
Say that I have several bronze platebodies which I've collected over time. I would like to be able to salvage materials from those items by using either my smelter or my anvil to get bronze scraps. These scraps could be resmelted to make bronze bars which would then be turned into bronze steeds, or whatever.
Leather backpacks could return 3-4 pieces of leather, as another example.
Rather than sitting on relatively useless items, let us recycle them.