This pattern is a part of Elfy book 2 (not in print yet). In the story the blanket is knitted by 2 mushrooms out of moss, for their good friend Elfy.
I tried different ways (see below), but the above is my favorite. The most difficult part was to knit shapes that are more natural, and not round perfect circles.
The border is seed st, background in reverse st.st. and the circles are double stranded with the background yarn.