I understand you dont want PVP, and you are afraid to lose your items. But just think people have overcome that fear because items are just that items. You earned them once you and earn them again. This isnt WOW where items take years to get with a lucky loot roll after killing an epic boss. Items here are mostly easy to replace, and if you cant easy replace them use a lower item until you can.
If you have items that you are afraid to lose, then dont use those items in times when you might lose them.
You know you cant please every one right?
Lets just use your "everyone wins and feels happy".
What if you have playerA who doesnt like to lose items on PVP deaths.
What if you have playerB who doesnt care about losing items on PVP deaths.
What if you have playerC who only cares about taking playerA or playerB's items on the win.
You cant please all 3 of those players.
playerA 's ideas are causing issues with economy
playerB 's ideas shows an issue with the economy
playerC 's ideas are causing issues with playerA's gameplay.
That is just a very limited break down for you. I can go more in-depth but I see no real reason too.
Just FYI PVE already has a loot table.
PVP has full loot.
I would rather see a system with less random rare loot that is contested. I see no reason to have "random" loot.
The looting of the other players in PVP is very common, why you loot in a sandbox game is to cause a resource drain on the enemy forcing them to back off, or expend more resources to keep fighting. If there were no loss of items in PVP, you would need larger losses in other way else everyone would be killing everyone and no one would care if they died or not.