I like what seems to be the contemporary "hardcore" approach to death consequences--you drop a grave, but each player only gets one (non-despawning) grave. In other words, if you die, your last grave is overwritten, and that grave the new grave stays until it is looted or until the player dies again, in which case a new grave appears. What this means is that there is significant tension between the player dying and getting back to their items because if you die again while trying to get to your items, you'll lose everything. But at the same time, it still feels fair because you getting back to the items is up to your capabilities as a player, not how far away you spawn from where you died (like how a timer punishes death).
Also, I vote for it to not actually be a gravestone but instead something cool and unique that relates to Vintage Story better than a gravestone appearing.
I also like the idea of potentially keeping at least a few select item slots intact upon death, because that lets players journey without fear of losing their favorite items. I know that when games make you lose everything upon death I basically just never use my favorite stuff for fear of losing it. That never really applied to Minecraft though, because nothing in Minecraft is that scarce.
Just some ideas
