While in Fostervilla, Kaos Kreegan was part of a secretive group called the Syndicate. They protected the city from evil, although they had some debatable tactics and means. When Kaos proved to have a meteoric rise, the leader of the Syndicate awarded him with the katana, Fenrir, as a gift.
Though no one truly knows where Fenrir came from, it is believed that it was constructed by the gods. The metal itself is of unknown specification, so those who have seen the blade have taken to calling it infindium. This is primarily because the blade is lightweight, yet ultimately indestructible.
When Kaos Kreegan met Dirk following his stint in Fostervilla, he began equipping the wolf with a harness for Fenrir. If needed, Dirk could bring the weapon at a moment’s notice, ultimately providing Kaos with a quick surprise attack should it be needed.