This mod would include fears of many types: Target Panic, Spiders, Heights, Revenants(Er, Skeletons), Zombies, as something you can spawn with.
Being near a sample of the fear, like being 5 blocks up with a fear of heights, would provide an effect.(for example, weakness or speed), or being in a horde of zombies with a fear of them, may give you(Resistance I, and Strength I)
Target Panic could mean being unable to shoot a bow, or bow-like objects
Having the ability to create absurd phobias, (Certain items in your inventory, certain blocks in a radius, certain mobs nearby) could make for some incredible challenges.
Any fear can be overcome(Configurable to not overcome a fear), and it is possible with contact to gain a fear, which may have a duration where they don't affect the player until the duration expires. Possibly Keeping out of contact with something could nullify the fear for a time.
I think someone attempted something similar before with the Fear the Darkness mod, although it was a more rudimentary fear mechanic. I'd love to see a mod come out that adds stress/sanity to the game, akin to what you might see in Darkest Dungeon.