Sounds a good system to me although if there is a limit to players who are within your range to attack. one everyone is one level to begin with we could have major lag problems untill the spread ocurs as thoose more active progress.
That is likely im guessing to be capped to prevent this however.
Would be nice if each server divided players into a map say 70 people on per map and then as it wittles out the weakest players (they once loosed will be transported to a new region). They carry on battleing and merging regions so you always have people of similiar skill level to you in your map.
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