Free item system is an alternative to vendors and loot farming, which eliminates the economy aspect of the game along with grind.
The idea is to allow any character to create or get any item for free at no cost in time or currency, to maximize customization(instant character build):
Typically instead of Leveling and item farming:
1.Character is presented with N skills points and M stat points.
2.Character is presented with vendor pages with free items and object to enhance items.
3.Player selects skills and items, crafts/enhances items and starts the game.

This system is suited for Arena-type games(MOBA,Duel,PvP) and skill-centric RPGs.