Nice, this is the right decision, been tryin' to tell you guys!
Moderation is GOOD, been trying to tell you guys. People who are JUST TOXIC need to be removed. "Sandbox" is no excuse for certain things.
HOWEVER, the flip side of that coin is you must scale back all of the protections you placed in (arguably vain) to prevent these, like massive guards, etc. Open the game for players who play within the realm of what is 'fair,' and ban the people who don't even wanna play in the sandbox. It's SO EASY, yet it's a step SV/all sandboxes have refused to take due to feelings that their player base will be offended.
It's not that hard to tell the difference between game play and outright toxicity both in communication and play style. A review of said interactions could and should be done, and a punishment should be rendered. However, remove the guard rails now!
If people are gonna reveal their 'true nature,' let them do it and get banned. Or get temp'd and change their ways.
No in game mechanic can prevent toxicity. It requires outside moderation. Sure, some people will disagree w/ the decision (generally the people getting moderated haha,) but if you get 3 strikes, it's kinda like... c'mon. Either quit after getting strikes for your play style or go to the end and take the perma. - shrug -
PLEASE PLEASE PLEASE consider what I said about making the game less tedious for behavior that may cause grief... like pvp, scorched earth warfare, etc... we need that stuff. But when people step outside of the lines, they need to be dealt with.