I'm very glad the core system works nicely. I'm very fond of Punch Out and other old arena brawlers, and I was trying to capture that feel nicely for a new generation. Even if it's flawed, I'm glad it's got potential.
Thinking about it a little bit I think you're right. A player shouldn't be given a disadvantage for landing successful hits onto the enemy. I'll make it so that the enemy only gets special if they block the attack or if they hit you, rather than getting hit. Fighting them well should put you in less danger, not more!
For the next iteration I'll try to give a rework to several of the animations, add some more frames and refine things to look a little more dramatic so that there's a more clear indicator.
Thank you for your criticism! I'll be using it to make this better!