The Dagger of the Violet Crusade is a weapon specially crafted by the blacksmiths of the Violet Crusade. They are given to all joining members as a sign of their guild, and is a very good weapon. It is an artifact, so it will crumble if it's used for too long. It's best to put into a trophy room at a player owned house or not use it for the duration of time. Picking it up will get you closer to the (Artifactologist) achievement.
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This weapon only drops from Kathryn if you defeat her as a challenge, with a 15% drop ratio. It is also buyable from the Violet Crusade, after reaching 5000 reputation by doing various tasks. Mages get a bonus by completing the  The Archmage Trial.