I always felt a good idea for death penalties would be to incorporate them into the different difficulties other games use.
In most other RPGs like diablo and grim dawn etc we see normal mode, veteran, elite, mastery etc. where mob health and damage are increased but so are the rewards. Why not add the death penalty into something like this:
Normal Mode - No penalties or bonuses.
Hard Mode - Mob health, damage, crit chance and speed increased by 50%. No death penalty. Rare/Unique drop rate increased by 100%
Veteran Mode - Mob health, damage, crit chance and speed increased by 100%. Player/minion protections decreased by 100. Upon player death, experience lost = 50% of current level. Rare/Unique drop rate increased by 250%
****Gold loss per death - 1 on first death, 10 on second death, 100 on 3rd death. 1000 per death thereafter
Elite Mode - Mob health, damage, crit chance and speed increased by 200%. Mob ability cooldowns decreased 100%. Player/minion protections decreased by 250. Upon player death, current level experience is reset. Rare/Unique drop rate increased by 500%.
****Gold loss per death - 1 on first death, 10 on second death, 100 on 3rd death, 1000 on 4th death and 10000 per death thereafter
NOT TO 50! Mode - Mob health, damage, crit chance and speed increased by 500%. Mob ability cooldowns decreased by 200%. Player/minion protections decreased by 500. Dodge, glancing blow, stun avoidance and ward retention decreased by 25%. Upon player death, player level is decreased by 1. Rare/Unique drop rate increased by 1000%. Cosmetic items may drop in game.
****Gold loss per death - 1 on first death, 10 on second death, 100 on 3rd death, 1000 on 4th death, 100k on 5th death and thereafter.
Your mileage may vary…