The archvillan always escapes to fight another day. The heros job would be to be Guardians of the Land defending it from the threat of Umlaut.
Lose - Umlaut takes all gold (except for one coin) & all soulstones in gear. Guild members lose their gold too and each member gets a "Message from Umlaut" explaining your loss and taking spoils from the guild.
Win- Get a soulchest for each toon in the game & a wagonload of diamonds. Guild members get a pouch of diamonds.
For story, Umlaut would be Magic Dragon (Understudy's sensei)& Spectral Dragon. Spec would be Umlaut's spectral form.There could be a little interstory. Faith Healer notices that the two heros are missing then ...Umlaut and the fight.
I imagine Umlaut as a maxed toon with the combined powers and health of Spec & Magic. A health bar overhead like in the boss pit. Umlaut doesn't damage health, it damages XP which would have to be built up again. Toons could lose levels during a fight. I have thought a lot about this