Warning, Long Post:
Im gonna dump some game maker knowledge here, before anything goes ahead, hopefully it gets taken with a pinch of salt. I'm no expert, but I do have some experience from work and education of game making.
Step 1, needs to be what kind of game its going to be and the direction. What I mean by this is, will it be the traditional fantasy game that gives you a basic set of rules and you then can combine or create custom abilities for them, or will you lean into the Naruto side, and have a hard magic system that specifically says 'you have basic elements, you have KG/AE/HA/Modes' etc The core design first is whats going to affect the rest of the game from character design, to stories to the world etc.
We saw a big problem with this when people tried or successfully adapted various other anime powers and systems into the game itself, which lead to various meta states, arms races and abuse of power trying to make the strongest abilities through wording.
Importantly, do you want people to be able to create what ever they want, without restrictions? Do you want people to only be able to create what is actually able to be done in the system itself? Creativity is great, and giving people the freedom to make what they want is nice, but you will have people that take it too far, you will have people that will abuse that power. Its about a risk-reward of how much work do you want to have to do to then fix these issues later on. Creating a system that allows for creativity but still gives hard rules is definitely a challenge, but sticking to it is more important. I will give one example, that always makes me laugh.
The custom elements bureau started off as a great idea, until people started submitting and approving concepts and physics laws. Things like colour or 'atmospheric pressure' should never be something people can control.
Step 2 is then designing what kind of game you want, and what that means is, will it be primarily a single player focus with co-operative elements? WIll it be more akin to an MMO? Will it be just a free for all with an ongoing story? Without an actual plan of what the system is meant to be, you end up having multiple different design philosophies that cross over and end up making what the game eventually became. A mismash of different systems slapped together to appease everyone.
Choosing and sticking to a system is going to be important, because the focus will be either, RolePlaying (think D&D, more tabletop based games), Creativity (more along the lines of co-op online games like looter shooters) or story (MMO like final fantasy) Each have their pros and cons, but its especially needs to be decided and stuck to.
You need to be clear whether this is going to be a 'this is the over arching story and everyone else can make their own stories to coincide but we will move the story along regardless. (This is the MMO philosophy, like Wolrd of Warcraft, Destiny, Final Fantasy etc). Strengths of this is a sandbox mode for people to just express themselves however they want without worrying about being involved in the story, you can have a series of quests, people to explore the story at their own pace, doesnt matter if theyre up to date or not.
Cons, players might not feel like they have much sway over the story, might feel like no matter what they do, wont change the outcome of the ongoing story.
Other option, having tabletop game philosophy, will mean that players actions will determine the outcome of the story, things like Warhammer Crusades, Long Form Roleplaying. Done by effectively players choosing factions to do missions for, builds up more of a chance their faction gets to move forwards.
Pros for this is that is all about which factions have the most activity, giving active players a chance to shape the story. You have a three way war, one faction has more missions done than the other? then they get more supplies and eventually take over.
Cons, players that arent as active might feel their contributions not matter, if they pick a losing side then their points go to waste, etc.
To reiterate, the above is about design philosophy in terms of story, about how you want the RP game to actually proceed, not what you have to do for a story.
After that, Step 3, deciding what to allow and not allow because importantly, you need to have a vision for the game, what you actually see the game being. I think sometimes the mods didnt really consider just how far the game could run or what the end goal was, which ends up hurting the health of the game. What do you ideally see as the end game power for the RP system? EG D&D has a level 20 character that can kill gods, MMOs have level caps and max gear but still require a group of poeple to defeat the toughest content.
Do you want people to be able to solo an end game boss, to be able to feel that power fantasy despite the story? Or do you want them to still have to group up to fight an end game boss?
I have more ideas, but I think I'm rambling on a bit more here just for some suggestions, especially if you guys have things going on in the background.