The town of Midgaard had become a corrupt place. The cityguards were all under the pay of evil crimelords and all of the happiness had left that town.
The main people of Midgaard had always been adventurers who traveled throughout the land gaining gold and fortune. One day, a group of adventurers left Midgaard to seek their fortune.
After travelling far to the east, they came upon a giant underwater city. After much adventure and treasure, and more than a little pain, the adventurers began the long trek home. They stopped at a large town named New Thalos for supplies and commenced the long trek west towards Midgaard.
On the first night, after raiding some trolls, they camped out, to recover from some significant wounds. During the night, one of them, Kennon, awoke to find a beautiful white unicorn standing over him. The unicorn healed his wounds and blessed his equipment, making it much more powerful. He awoke his companions and they too benefitted from the unicorn's generosity. The unicorn then proceeded to leave. Not wishing to lose such a valuable creature, the group built a quick landmark, on top of a hill, and began to follow the unicorn.
For many days and nights, the adventurers tirelessly followed the unicorn. After a few months, the unicorn led the adventurers to a shrine to the ancient Gods. There, the adventurers were offered a proposal.
Because of the state of affairs of the world, the ancient Gods were no longer completely in favor with mortals. They decided to empower some mortals to act as intermediate gods. These gods would bring the religions of the ancient gods back into the world. They wished to take the mortals before them, make them the intermediate gods, and give them the power to forge ahead into the world.
After much debate, the adventurers decided to accept the proposal. They spent two years in that shrine, studying the precepts of the ancient gods that they were to assist. After that time, they returned to the world.
They immediately returned to Midgaard, where they gathered followers and supplies. Their group, which consisted mostly of disgruntled adventurers, returned to the site of their original landmark. There, they built a village.
They told their story to their followers. And the followers coined the name "Lost Unicorn" for the village.