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The Dragon's Eye is an artifact brought in by the Kouran Army from the west. It allow the user to communicate with a dragon, specifically it has been brought in to be used as a trump card against the Red Dragon. Before, that is, it fused with Ibuki and instead allowed him to communicate with the Red Dragon and leading to him forming a contract with it.
Dragon's Eye

The Dragon's Eye

Dragon's Eye

The Dragon's Eye fused with Ibuki's Chest