Well, if the death penalty and unlimited leveling is no longer making the game attractive enough to your players, concentrate on other features that you think are unique or important.

You say your game is role-play heavy... why not take that as the main focus and see how you can change the whole death penalty and unlimited leveling thing to support that role-playing better?

Also, if the wars between guilds are the sole problem, why not find an excuse to lift or atleast ease the death penalty just for these events?

For example by making the "guild wars" not being fought with live weapons anymore. Say the fights between guilds are staged fights for supremacy, the weapons used are not sharp, and getting pummeled by an opponent during these events does not mean death for participants (though you could still have character knocked out during these events get a much smaller penalty to their levels... they got injured, and now need to heal back to full strength which might take some weeks).

Your players could still be swallowed whole by a rogue monster in the field and face a harsh penalty for that. Getting out into the field would mean players need to be VERY CAREFUL... the dangerous wilderness would feel just like that.

When facing off against another guild, players could go all out and get all the action ladden excitment off a staged combat, because they know they are not risking their characters lives (or 1000h of grind) doing that.

Personally I would lay out how you want your game to FEEL, how you want players to THINK and ACT, and only then try to come up with rules (or in this case, alterations to existing rules) that support that behaviours, mindset and feelings.

Don't try to tackle something emotional as an expierience as a game from the hard cold side of game mechanics and rules. You will stumble around in the dark that way. Turn it on its head, and see if you can find the right mechanics that way.

Personally I would lay out how you want your game to FEEL, how you want players to THINK and ACT, and only then try to come up with rules (or in this case, alterations to existing rules) that support that behaviours, mindset and feelings.

I've been thinking the same. Ravy, do you have anything like a clear vision statement written? What you want is a holistic document that details your vision for the game, your dreams, aspirations, values, the core identity, etc. When your vision is clear, you'll see opportunities everywhere.

Since what you want is sustained desired change, I refer you to a couple articles on intentional change theory. To get free access, you have to register with SIPX, but that is free.

Intentional change theory at the organizational level: a case study

The ideal self as the driver of intentional change

Best of luck with your game!

Just a quick idea, maybe something like Aegis of Immortal was in DOTA could help. Here it could be achieved for experience. There would be everlasting quest for stone of recovery to be activeted. After activation player would not raising experience but "fuelling" the stone. It would work also as an experience sink. And what is the difference against current state where the death is the sink? Feel of control, you have the stone you can risk and vice versa you can choose to risk more and grow faster. But maybe it would not fit into the setting and other problems I cannot predict now.