Just reposting as this very important issue pops up in many threads.
Attacking is risky mainly because of what parry gives the defender and defending is safe because it is risk free and offers great reward.
If parry was reworked in the following way, parry would still be good, but not offer free damage and not make attacking so risky.
Parry
First there are some changes and effects for the person being parried (attacker)
1. No stagger after parry, so the person being parried can defend himself from attacks and GB
2. After being parried you cannot dodge backwards or you will fall down.
3. Stamina drain like now
4. attacking and GB disabled for a moment after being parried, so the only option is defence (including CGB)
Then there are some effects for the one doing the parry (defender)
1. The next heavy attack is faster (maybe even the next combo starting with a heavy attack coult be faster and perhaps this heavy attack could chain directly into any combo chain).
2. The next heavy attacks could have increased chip damage, but don't know if this one is needed.
3. The next heavy attack costs no stamina.
4. The next heavy attack may inflict stun if it connects,
5. No options for light attacks, I know, but heavy attacks could get a bit of love through parry.
6. Several options for rewarding parry without, disabling the other person.
With this parry system in place, we could see some quick exchanges of parry back and forth, that would keep the combat going with no pause after a parry, but instead a feeling of urgency as parries speed up the action and change timings instead of breaking up the action.
Blocking
That leaves us with the more basic part of defence - blocking.
We have two tiers of attacks - light and heavy.
To match that two tiers of block would work very well - half and full block.
Half block
Getting to half block happends instantly when you switch guard. Half block allows you to completely block light attacks. From half block you can only parry heavy attacks. Heavy attacks hitting half block may do full or reduced damage. that's balancing.
Full block
as soon as you enter half block, the direction meter begins to fill up and after a number of frames it is full and you are in full block. When in full block you can block heavy attacks. The number of frames it takes to reach full block can vary from character to character, to give more balance options. The quick characters who are good at dodging may need a few more frames to reach full block.
For this to work, heavy attacks must be balanced in terms of speed across the board. they don't have to be the same, but must land within an acceptable range for balance to feel right.
A different approach to half and full block
Each attack in the game could also be given an attack powe, balanced with the speed of the attack. When blocking characters would build up block power over the frames after entering full block. When an attack and a block collides, the block power and the attack power is compared to calculate damage. My suggestion is that there is a cut off point, so if you don't have at least half the block power relative to the attack power, the attack does full damage. After that damage is gradually reduced, until half damage. If you match the attack power, the attack will do no damage at all. Sounds complicated, but really is a simple principle. 
Just a second idea for how to approach blocking, that doesn't have to change the characters.
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