Right now, the player has the ability to pick their own battles whenever and wherever. Meaning that as long as the player has an idea of what challenge they'll be facing next, the chance of them losing is very low. Moreover, the penalty for losing combat encounters in the first place is pretty much non-existent besides what few pills you spent throughout the encounter.
It'd be really cool if more random combat encounters occured to keep the player on their toes (Things along the lines of the Gian noble that constantly picks fights with you), like some of those demonic cultivators actually choosing to attack us instead of the other way around. Or after you finish the auction, one of the participants of the auction attacks you for outbidding them on an item they really wanted.
As for punishments for losing a fight, it could very easily be just you losing a set percentage of your spirit stones, and maybe an item or two depending on the nature of the encounter (for example, if you lose the fight after an auction, they'd take the auctioned item that you outbid them on).