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In Labyrinthia, magic and witches are common place, and are seen as logical. Witches are generally hated and feared due to the chaos they can and do cause, and are traditionally executed via being thrown into a fire pit. In actuality, the town was a research facility built during the present, on top of an old town that burnt down from a large and horrendous fire.
For an unknown amount of time prior to the game, an ancient civilization was built upon the land that would eventually become Labyrinthia. The inhabitants built a bell out of pure silver, which they used for ceremonies. However, a toxin in the groundwater gave them a unique, peculiar condition: they would fall unconscious upon hearing the sound of pure silver being struck. Presumably, a disaster befell them similar to the Legendary Fire, after which the inhabitants believed that they were cursed. They sealed the Bell of Ruin underground, left messages warning people against ringing the bell (or risk "Bezella" being released), and fled.
Years later, Arthur Cantabella and Newton Belduke discovered the ruins left behind by the civilization; they were born in the town that was now built over the ruins. Both men discovered the bell and decided to eventually bring it to town, hoping to use both the ruins and the bell to draw people and attention to their forgotten town. After pursuing their own interests, both men founded Labrelum Inc., a pharmaceutical company that marketed drugs derived from the local flora. They returned to the town of their birth and restored the bell atop a bell tower, where it would be rung for special occasions.
Unfortunately, tragedy would strike once again. While Arthur and Newton were out on an expedition during the town's bonfire festival, their daughters, Espella and Eve scaled the tower themselves to ring the bell, causing all the townspeople to fall unconscious and leading to the Legendary Fire. The girls were the only survivors in addition to their fathers, but were mentally scarred by the incident, with Espella believing that she caused the fire and shutting herself out from the world.
Desperate to snap his daughter out of her mental condition, Arthur began an elaborate plan. Labyrinthia was built as a research facility with funding from the government, under the pretext of observing the effects of a town under hypnosis, using an anesthetic developed by Labrelum that had powerful hypnotic effects. In truth, the main driving force behind the fake town's creation was to try and suppress Espella's thoughts that she was the legendary Great Witch Bezella (due to her believing she caused the legendary fire) spiraling out of control.
The town's inhabitants were made up of members of the public, who all signed a contract agreeing to take part. All "test subjects" then underwent hypnosis using the drug, suppressing all their previous memories. They were then given simple instructions: they would receive new names and occupations, and would not be able to see anything that was pure black (i.e. did not reflect light). The test subjects' minds filled in the rest.
Arthur himself took up the role of the Storyteller, who wrote stories that "always come true". Eve was given the pseudonym Darklaw, who along with her father organized the witches and magic that were seen throughout Labyrinthia. In reality, the stories were written with ink made from the same brainwashing anesthetic, thus making those who read them believe whatever was written, and all the magic demonstrated were engineered by means of machines and materials that were colored pure black (through a material also made by Labrelum). Due to exposure to the hypnosis, the town's inhabitants were completely convinced that magic was real.
In order to illustrate the stories of witches being punished for misdeeds, witch trials were set up in which people found guilty of witchcraft were condemned to death by fire. In actuality, condemned witches and victims were escorted to a village outside Labyrinthia, had their memories wiped and reborn as Shades. The Shades would follow Darklaw's commands to help engineer the magical illusions and make more quantities of the anesthetic.
- The city's name is likely derived from the Labyrinth of Greek mythology.
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