“We thought it was just a big rock! But when we threw the anchor, this huge eyeball opened up and these red legs came outta nowhere! We just ran for it and barely made it out with our ship in one piece!” - An Anonymous Sailor.
This discovery can be found floating above the largest island beyond the sky rift north of Daccat's Island, almost to the Lands of Ice. You'll know you're in the right area if you see a large, blue squid in flying around; NOTE, however that the giant blue squid is one of the four Monster "Ship" battles.