Borrowing from different MMOs already out there:
When you die, your soul appears at the closest waystone/ temple to your corpse and you must run to where you died (WoW, ESO, etc). All your non-equipment items are dropped next to your corpse for anyone to collect (Minecraft), but you can get them back if you get back to your body before anyone else does, or a friend can collect them for you. Still some risk of permanent loss if they fall into lava, or down a bottomless pit or something. Maybe they also vanish after a set time (2 minutes or something). You rez at half health and half energy. Your weapons and armor stay on you but suffer 20-25% dmg (WoW). A friend can rez you to avoid certain penalties. Perhaps there are different staffs, spells, stones that rez you at full health or give you a buff on rez, or reduce equipment damage.
I think combining elements like this would make death risky enough to be avoided, but not kill your game entirely. It would also encourage grouping because you’d have friends to collect your stuff or rez you.
