Glowing fungus is a quest item used in the Haunted Mine quest. It is used to light the way in the lower parts of the mine where fire-based light sources are extinguished and tinderboxes become damp tinderboxes by being dropped into a small pool, hence why a glowing fungus is needed.
Being used to growing in a very dark cave, the fungus is very susceptible to sunlight and will crumble to ashes if taken out of the confines of the mine. It crumbles when dropped, too.
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