The Dagger was bought from a drunken sailor in a back alley in Marsales, who was desperate for money. It sold for a mere 1000 pieces of eight - much less than it's apparent value in gemstones alone.
The Gemstones are, in fact, paste that were tacked on to an otherwise serviceable dagger.
The weapons true value, however, is in the enchantments that it bears. The blade's edge is honed to a sharpness beyond that which a mortal whetstone can achieve and the weapon seems to move with it's own will, making lightning cuts and flashing parrys.
The dagger does +1 damage and grants one who wields it the First Strike and Block edges.