Yes, if you die, it is a bad thing. There is a penalty on Daggerdale for dying. Monsters like your things as much if not more as you like theirs. And it is trying on your mind and soul when you die. You almost lost...a part of you, if you will.
The death penalty for the server is as follows:
[b]20% gold to a 30000 max, Chance to lose an item is not level-based as before, it is regressive right-hand & left-hand (20%)/Cloak & Helm(15%)/Everything else(10%), and XP loss is capped at half what you need for the next level. Anything you lose will be put in the nearest container, ie rocks, chest, dead body. If there are no containers near, a player pack will spawn then.