You have transformed into an interdimensional demon, and while your power is at its strongest within the dreams of others, you can still wield a fraction of your might on the material plane. Dream demons originate from the second dimension. As a being from the second dimension, you are a higher-dimensional being than most people on the traditional plane, and you require a host to physically interact with the material plane.
As a being of dreams, you are at the height of your power, while inside others dreams, it is unmatched. Being able to warp the entire fabric of reality while in others dreams. You are able to foresee things that have happened in the past and future, using it to your advantage when taunting others or getting them to make deals with you. peer into alternate realities, viewing the multiverse from the position of someone from a higher dimension. manipulate and create illusions to confuse others and trick them into deals that they normally wouldn't have agreed to.
The abilities you have access to also include becoming intangible to dodge incoming attacks. Fly at the same speed that you can normally walk without exhausting your stamina. induce nightmares in those you are near. possess others and gain access to the material plane. control fire and manipulate it as a method of attack. Regenerate from almost any attack. shapeshifting. Move things around with your mind, read others minds, and possess the power of immortality. You also possess the ability to make deals with others, granting their wishes in return for power or other things that they are willing to offer you in exchange for their wishes being granted. You can trick others into deals, but they can also trick you, and you are unable to force someone into a deal.
Outside the dreams of others, your powers are weakened, but this can be nullified by making deals and growing in power as you explore your demonic powers.