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Defeat is a pseudo-event that occurs when all of the land in a level is dead. It can only be caused by Zomblins.
If you know that you are close to defeat with no hope of destroying all the Zomblins in time, be sure to leave the level by resetting it: if you don't you will need to pay the required chalices to enter it again, only to return back where you were with no possible way to win.
After the Defeat screen pops up it will redirect you to the World Map. Progress is reset and you can redo the level.