So the problem with upgrading, is that it locks that piece of gear into your inventory forever, unless you sell it to the trader.
Since there's no option to trade it, if you did want to pass that gear on to another player, well... you simply can't.
To correct this, there could be a new NPC which removes the upgrades on a piece of gear, for a cash fee.
This will completely remove the upgrades and give you back 1 item that can now be traded.
It's still a resource sink, because players are still going to upgrade their gear for their own use - and all of those upgraded sets are lost, but it's also a fact that good gear is hard to come by for new players. If you happened to miss that particular tombola where it was sold, and each gear is only ever sold one time, you're probably out of luck, due to the prevalence of upgrades, and as the power levels of sets creep forever upwards, we're left with dozens or even potentially hundreds of sets (there's more than 300 sets in the game currently) that could be used by other players, except we can't trade them.