Obsidian Knife Quest/Spoiler

Method
You will have to cut down the wheat that is east of depot, you have to use the schyte on the square just north of the hole. Go down. Follow the path and rope yourself up into the tower. You will find NPC A Sweaty Cyclops there. Ask him for an Obsidian Knife, and he will tell you that you can trade a Dragon Shield and an Obsidian Lance for a Obsidian Knife. If you have the items, he will give you the Obsidian Knife.

Transcripts
''Player: obsidian knife A Sweaty Cyclops: Do you want to trade a Dragon Shield and an Obsidian Lance for a Obsidian Knife?''