Friar Marcos de Niza carried the dagger with him when he embarked on a scouting mission through Central America with his guide, Esteban, and a group of Spanish Conquistadors in 1537. They traveled south and came across the ruins of Quivira, which Marcos mistook for one of the Seven Cities of Gold.
Upon entering the city, Marcos was horrified at beholding the fate of the Quivirans, and came to believe that Quivira was hell on earth. According to the rituals of the Sete Cidades, Marcos sacrificed Esteban with the dagger (using it to pin him to the Throne of Gold) and used his sanctified blood to seal the gates of hell.
The dagger remained in Quivira until it was discovered by Nathan Drake and Marisa Chase. They removed the dagger, which would have proved the Marcos traveled there and vindicated her grandfather's theory. When Jason Dante arrives with his mercenaries, he takes the dagger from them and, when he learns it is important to Chase, and hurls it into the Lake of Ghosts.