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Originally Posted by idimmu
Are they actually just leveling up the NPC enemies, or are they replacing them with harder enemies instead?
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Unique spawns are made more difficult depending on your level. In terms of spawns, there's two systems in place. The first is the "random monster" thing. For example, early on in the wilderness you can encounter wolves, deer or rats. When you level some, then you'll start seeing mountain lions as well, however these are put in randomly amidst the other mobs. The second kind is where the number and type of enemies in an area are dictated by your level; the inside of Oblivion gates seem to act like this.