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STEM, developed by Ruvik and funded by Mobius, is a machine allows multiple consciousnesses to be connected within a single mental world. The majority of the events at Beacon Mental Hospital in The Evil Within took place inside of a STEM.
Using one person as a "core" to host the world, the STEM system connects its users' consciousness to this world. The contents of this world are based largely off of the memories, perceptions, and mental state of the core. This core also acts as a sort of administrator and is the only person with direct control over the world. If the core were to go missing, as Lily Castellanos did in The Evil Within 2, peoples' sub-consciousnesses can run wild, and their deepest fears can manifest in many forms of horrifying creatures.