With the introduction of new villains today in the play-through introduction, do you stop using the first two, SM and YC, or do they continue to play along with KS and NN? Thank you.

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Yes, you're correct. You pick one of the two, although lots of people are playing both so they can get a feel for all of them before deciding. These are the last two "demo" characters. When this one is done you'll pick one of the 6 or make your own. I saw an announcement in the Discord that they just released the rules for making your own. Not sure where else they'll be posting them though.