How the World and the Dvergar Came to Be
Odin, Vili, and Ve killed the giant Ymir.When Ymir fell, there issued from his wounds such a flood of blood, that all the frost ogres were drowned, except for the giant Bergelmir who escaped with his wife by climbing onto a hollowed-out tree trunk.
The sons of Bor then carried Ymir to the middle of Ginnungagap and made the world from him. From his blood they made the sea and the lakes; from his flesh the earth; from his hair the trees; and from his bones the mountains. They made rocks and pebbles from his teeth and jaws and those bones that were broken.Stones appeared in Ymir's flesh and came to life. By the decree of the gods they acquired human understanding and the appearance of men, although they lived in the earth and in rocks. These are the dwarves or dvergar.
From Ymir's skull the sons of Bor made the sky and set it over the earth with its four sides. Under each corner they put a dwarf, whose names are East, West, North, and South.The sons of Bor flung Ymir's brains into the air, and they became the clouds.
Then they took the sparks and burning embers that were flying about after they had been blown out of Muspell, and placed them in the midst of Ginnungagap to give light to heaven above and earth beneath. To the stars they gave appointed places and paths.
The earth was surrounded by a deep sea. The sons of Bor gave lands near the sea to the families of giants for their settlements.
To protect themselves from the hostile giants, the sons of Bor built for themselves an inland stonghold, using Ymir's eyebrows. This stonghold they named Midgard.
(taken from http://www.pitt.edu/~dash/creation.html)
How the Dvergar and Shadowclan Kobolds Joined into Alliance
The sons of Bor fashioned
the world from Ymir's flesh but of Ymir's heart they knew nothing. Deep in the
flesh which became the world, the heart of Ymir became a vast cavernous
underground world filled with strange and wondrous creatures. At the center of
the caverns was the place called Spindelhalla. It was there, that in the walls
of Ymir's heart, the dwarves grew. From the pools of richest blood came forth
the kobolds, fierce blue skinned creatures. The dark cavernous world was harsh
and many of both races went mad.
When the Aesir learned of
these races, they sought them out and taught them many things. But the Aesir
also learned the art of runes, smithing, and gemcrafting from the dvergar
and kobolds. It was during an audience with Odin that Motsognir first saw a
kobold. This kobold, Znogbug, was father of the kobolds and their lord. They had
both come to Odin on behalf of their people. Loki the trickster was causing the
madness amongst their races. Slowly their numbers were dwindling. So Odin, gave
them curing magic and knowledge to keep the madness away.
Motsognir and Znogbug became friends, hunting together and sharing the arts of their people. Over time, the two races claimed the lands below the earth as their own. During one hunt, they went down a tunnel none had seen before. This led them to a terrible place: the halls of the frost giants. Znogbug slew their prince and the frost giants became their dire enemies on that day and they have made war upon the alliance ever since. Motsognir swore his own curse upon the giants and upheld his friendship with Znogbug. Since that day, the two races have forever shared the same destiny.