only giving winners gear seems to work in pve
Well, considering PvE is player vs bot (you know, the thing that doesn't change it's tactic and really should be easy to kill to begin with) I see no problem with that.
PvP being player vs player, adds that aspect of randomness into it so a win may not even be possible depening on what the match-up is like. Without offering a minimal reward to the loser, this problem would just avalanche out of control. Winners will get stronger and those left be hind get more of a disadvantage.
When you die in PvE the boss doesn't get harder the next time around.