I think that there's been a misunderstanding about Aincrad.
'It's not better than any of the other kingdoms, it just has a lot of resources that other kingdoms don't have because it's not from Remnant.
For example Dust.
All of Remnant uses dust for everything, but Aincrad doesn't.
It only recently began to use Dust, but the Players are people from our world so they only know how to use things from our world.
To put it bluntly, they only know how to use the stuff that Aincrad or the Castle has, but have no way of recreating its magic, unless the person doing so is a blacksmith, someone that works with herbs or a beast tamer because those things need the person to learn how to use magic.
Other than that, the players are just using magic rocks and animals to do stuff.
This is the reason why they are trading dust for oil and coal.
Don't get me wrong they know that dust can be used to do impossible things, but from their point of view, Dust is just another magic rock that they can use to do things.
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So to answer how the cities were able to form, remember that the castle is enormous inside so it has resources to spare, those same resources were used when the cities were first formed.
This is still happening but not as often as it's not needed anymore, the farms and towns around the cities help each other thrive, so the castle doesn't need to give its resources to anyone anymore.
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Now to answer why the other kingdoms are interested in it.
Just look at our world any country that has resources will be targeted by everyone else and that's exactly what's happening to Aincrad.
Sure everyone is being nice about it, but the only reason that no one has invaded the castle is because the castle is the only one that can get to the Dust that's at the bottom of the ocean.
No one in Remnant is going to risk losing access to those reserves, so they don't attack the castle.
I mean the castle is in the middle of the ocean, that's filled with Grimm and the only thing keeping it safe is its shield and the fact that the castle can fly.
Sure there are a lot of monsters and players that will defend the castle, but the main thing keeping the castle safe is its shield.
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Aincrad Military
1. Players\ Knights; They are what most people would consider Huntsmen or Huntresses to be.
They are the best of the best in Aincrad and as such they live in the castle and govern the kingdom from there.
2. The Tested; They are men and women who have earned the right to enter the castle and have passed the test to live inside it, but chose to live as a regular person.
3. Beast Tamers and Aura users; These are people who have learned to control the monsters that live in the castle or have awakened their Aura and gained access to their semblance.
4. Soldier; These are men and women who are experienced in using explosives, different kinds of firearms, magic crystals, and dust.
5. The Untested; men and women who are learning to survive no matter the conditions that they are in. They are given nothing and are expected to fight the wild animals that live near the farms.
They learn to fight off Grimm that target the villages and cities as well as bandits that want to earn easy pay with just their hands, and whatever weapons they crafted from the materials around them.
6. Aincrad has a rather decent-sized navy however most of its navy is composed of beast tamers who control several beasts that fight whatever Grimm may attack from the sea.
It is known that Aincrad is building a fleet, but it will take time before its operation as it needs to train the people necessary to man the ships.
7. Currently Aincrad has no Airships as the sky around it is protected by several different kinds of flying monsters that fight whatever Grimm is in the sky.
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Jaune listened to the voices of the men as they chanted their songs while marching outside of the base.
They were supposed to go home but his grandfather had received a call so he ordered the airship to drop them off near the castle.
Now they were at the second castle, or first depending on which kingdom you were coming from.
"The world is changing Jaune." His grandfather says to him as he stops pushing his wheelchair before turning to look at him.
"In another time I would have told you to go to Beacon and learn to be a Huntsman."
Jaune can only open his eyes out of instinct, he can't believe what he is seeing.
His grandpa a man who until recently hadn't been able to walk was now steppin of the wheelchair that Jaune had grown accustomed to seeing him on.
"Aincrad doesn't know that their cure follows people outside of their kingdom, and it's a matter of time before other kingdoms find out about it."
"And when that happens there will be a war." his grandpa says to him.
Jaune doesn't say anything, because he doesn't know what to say.
"You need to be a man Jaune, because the chances that your dad and I might not be here when it's all over are high." his grandpa stands in front of the cell that has a woman who has her arms and legs held by chains.
The woman has long black hair and piercing red eyes and while Jaune thinks she would be attractive if she didn't look like she wanted to kill him, he couldn't help but feel afraid of her.
"This woman is older than you, so let me fix that." his grandfather says to him before his body begins to glow and his Aura flies off him and covers the woman who screams in pain.
Jaune tries to tell his grandpa to stop, but a glare from the man forces him to stay where he is, and by the time the woman finally stops screaming Janune finds himself surrounded by soldiers who are all waiting for something to go wrong.
"This criminal is your wife, learn to tame her and prove yourself to be an Arc.' his grandpa says to him before nodding at the soldiers behind Jaune who walk towards the half-conscious woman.
The soldiers begin to remove the chains from the woman who seems to come to life.
She begins to throw the men like ragdolls, but when she is about to hit his grandpa, Jaune sees that the woman stops and is struggling to force her body to answer her.
"Everyone in our family has two or four partners Jaune, and there's a good reason for it."
"Our family has created a Semblance that can increase our own Aura to strengthen ourselves or another person's Aura."
"Aura's are special considering that they can make us stronger, heal faster and if we can control them we can use them to reverse the aging process."
'I say that you're about Jaunes aged, don't you agree Raven?" his grandpa asks the woman who tries to say something but her voice sounds more like the roar of a beast, instead of sounding like actual words.
"Grandpa." Jaune says to his grandpa, but the man just tells him to listen.
'You are engaged Jaune to the Schnees first ' born daughter Winter Schnee."
"It's up to you to make your two wives submit to your will and obey your every word."
"Or they can accept you as their husband and work with you to help their family's power grow alongside yours."
"You have no say in this Jaune, the only thing that you can do is add one of two more women to your bed."
'Your training starts now." his grandpa says to him as Raven starts to scream in agony and a portal forms in front of her.
Jaune can only watch as his grandpa steppes through it and leaves him behind.
The moment the portal closes is the moment that Raven becomes silent before she turns and glares at Jaune and the soldiers that are with him.
Jaune tries to hide behind the soldiers but they push him forward, as they walk out of the cell and lock the door behind them.
'Waite!" Jaune says to them, as he feels Raven's blood lust.
Jaune feels his heart stop when he feels Raven's hand on his shoulder before the woman forces him to turn around and begins to beat him to death.
While this is happening Jaune Arc the first can't help but smile, as he remembers the day that he met his late wife.
His dad had done something similar to kin, but a lot worse because he had had to deal with every one of his wives all at once and they were all trying to kill him back then.
Jaune didn't know when he regained consciousness only that Raven had gotten tired of beating him and was now sitting next to him.
She noticed that he was awake and as her red eyes met with his blue eyes Jaune couldn't see any emotion behind them.
There was no hate, no anger not even pity for how she had left him, just cold indifference.
"And you are supposed to be an Arc, pathetic." Raven says to him.
"I'll tell you now, I have a daughter about your age, I abandoned her, a long time ago."
"So don't get any ideas about us having a happy family." she says to him before she raises her hand and shows Jaune a black mark that formed on her wrist.
Raven lifts Jaune's Left Hand and shows him that he has a mark around his wrist.
"The Arc chains, proof that an Arc always keeps his word." Raven says to him.
'So your name is Jaune, I heard the old man say your name more than once."
"My name is Raven and for the looks of it we will be together for a while." Raven says to him before she lifts her leg as high as she can while sitting down and slamming it onto Jaune's chest as hard as she can.
"So what's your plan, cause I got to say if you were thinking about pushing me down and making me yours, it's not gonna work."
"I mean you didn't even put up a fight." she says to him, but Jaune can only moan in pain.
'Waite don't tell me, the old man picked me as one of our wives." Raven says to him before she starts to laugh at him.
"If that's true then I bet you don't even know your family's history, and I mean the one that the public doesn't know about." she mocks him.
"He will learn as he grows."
"Now get up the two of you, we are going to meet your other bride." Jaune hears his grandpa say to him, but he doesn't feel any of the warmth that Jaune always felt in the man's voice.