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Horror2.0 is next on the agenda they are doing their best with a small dev team. so give em some time it's not like they never update. So the game is far from dead
That's where they should have kept their focus: gameplay. Cursed items change up the gameplay and present risk vs reward. Nightmare adds a greater challenge. Custom settings allows for more unusual challenges. That should have been a godsend, but instead it got bogged down by the pointless level system.
I think it was a huge mistake to try and improve that system instead of scrapping it entirely. It served no purpose and forcing everyone to start with garbage just to discard afterwards anyway and still have nothing meaningfully new to do afterwards shows it's literally just empty, pointless padding. Almost like they're just trying to keep players occupied with busywork instead of focusing on meaningful content.
Yes, a lot of players made a big deal over player level, but from what I could see, their notions were entirely steeped in made up excuses for elitism. In other words: nothing.
Phasmo is a puzzle game. Puzzles are solved and therefore get easier to solve again even when elements are randomized. That's how they work. This isn't some live service RPG where perpetual grinding is the point because later "levels" don't offer anything new here. Currently, "progression" has taken up too much focus and all they have to show for it is something that exists for the sake of existing while contributing nothing to the game itself.
Phasmo isn't dead in the water just yet, they're still actively working on it and anyone with any sense of actual game development progress knows this takes time. A lot more time than you think. Just be patient and do something else, keeping an early access project in the forefront of your mind is mental because they're not meant to drop major content updates every six months and release after two years. Back before EA was a thing, games had to spend several years in development before they could even be teased.
tl;dr - The game isn't dead, it's just taking the time a game needs to be made right. Chill.