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This is the broken sword that the leader of the Seven Deadly Sin has carried since the begining of the manga. We know as of chapter 27 that this is not his Sacred Weapon but he does use this for his Full Counter ability and it also seems to have some illusionary magic abilities.
How do you think he came to possess this weapon and why do you think he values it so much?
Well, the interesting thing is that we see Meliodas without this sword when the destruction of Danafor is mentioned. As you stated, it is also not his sacred treasure.
The most important thing about this sword, it is a broken. The sword was probably broken during a fight against a tremendous power. I think that this sword belonged to Liz. Liz was a holy knight and it might have been her weapon. The sword allows you to use full counter. Liz might have been a knight who used full counter with this sword against the power(s) which destroyed Danafor. Full counter was not enough to protect Danafor but enough to protect Elisabeth. Because of the power greater than full counter, the sword got broken.
The sword is very important to Meliodas as Liz was very important to him. The sword might be something passed down by Liz to him
There's something I don't understand about Liz and the destruction of Danafor.
We see a panel of Meliodas standing where once was Danafor, now a HUGE crater. But... in the earlier chapters we see a flashback of Meliodas talking with Liz in her final moments. While the place around her looked like some terrible fighting happened there, it certainly is light years away from being the same crater we see later. So from that we can conclude that Liz's death and Danafor's destruction are different events, in different places perhaps. In that case, where did Liz die, when and by whom was she defeated in battle? If the two events ARE related, how did the events happen? Did Meliodas found Liz, she died and then in a fit of rage he destroyed the whole goddamn country, including innocent people and Liz' dead body? Seems kinda weird to me.
Meliodas said that he didn't betray the kingdom, so I can say that he wasn't the one who destroyed Danafor. From what Meliodas said I think that both events are related, someone killed Liz and destroyed Danafor. This same person fought against Liz and broke her sword with a tremendous power like said.
In chapter 39 Meliodas used a ability called Counter-Vanish which seems similar to full counter, both them have the same nature, the first makes the foe attack dissapear and the second makes "appear" even greater, are almost oposite abilities, but with same nature. Thus I have my doubts that the full counter is a ability of the broken sword.
Indeed are we sure full counter is thanks to the sword ? I thought it was Meliodias natural power (like Ban has the stealing power). He didn't used it in the semi final to reflect the fireball.
With regards to the sword, I think I'll go with Koen's opinion on this until we get more information on either Liz or the sword itself. It may be that it wasn't passed to him but rather he kept it after her demise and the fall of Danafor as a keepsake.
For me the sword belongs to that girl we apparently saw dying in the flashback. Dunno, the idea that his full counter is related to the weapon is a bit weird to me. Full counter is something he apparently could use during the tournament against ban so odds are the sword is not instrumental to full counter. The gang does not really seem to know it from their years together which further suggests the sword is not relate to full counter.
I wouldn't put it past the sword being at least related to a sacred weapon though. If his weapon can change forms perhaps it is just one of the broken forms hence why the gang does not recognize it.