Instructions
Travel to Daemonheim. The easiest way to get there is by taking the ship from Al-Kharid. The dock is located immediately west of the Al-Kharid bank. Click on the shipmaster and he'll offer to take you the Daemonheim peninsula. Daemonheim is the castle in the middle of the peninsula.
Enter the dungeon and proceed through as many levels as you can. The dungeon is randomly generated, drawing upon several dozen challenges and rooms. Each play through of the dungeon will be unique. After completing each challenge, you receive experience and tokens.
Exit Daemonheim and walk south. Immediately past the dungeon gates you'll find Daemonheim Rewards. Speak with the shopkeeper to see his inventory, which includes the Chaotic Rapier for 200,000 tokens.