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Caterpillar Fungus The use of the caterpillar fungus is believed to have started a thousand years ago. It was either ground into a powder, or mixed with other tonics. It tastes sweet. Caterpillar fungus cures tuberculosis, coughing, anemia, and back and knee pains. It is mainly used as a tonic to increase strength or for rejuvenation after a long serious injury. It can also reduce stress and has been widely used as a tonic and/or medicine for hundreds of years.