As you progress through Stranger of Paradise you will find a lot of equipment, and most of it is going to end up being replaced or unused. Good news is, the game has a system to get rid of this excess gear while getting a use out of them: the Smithy.
You can speak to the Smithy while you’re in the world map (so, only in between the missions).
Here you can get rid of all of your excess gear by turning it into materials for upgrading your current gear.
In fact, the main way of getting upgrade materials is to Dismantle your old gear. You can select which pieces you want to disassemble, and see what materials you will get from dismantling the piece. You can also press to select multiple pieces at once — if you do so, you will see the total of all of the materials you will gain if you dismantle the selected items.
There is no reason to not Dismantle gear: it costs nothing to do this. Meanwhile, there is a cap of 500 pieces of gear you can carry during a Mission (and 4500 pieces total if you use the stoarge in the World Map), and you can expect to find a lot of gear during missions. It’s a good idea to just dismantle all of the excess dear you have in your inventory between missions, clearing everything out to free up the space.
Only thing to be careful about is Dismantling weapons. If you accidentally get rid of every weapon in a weapon type (like every Greatsword you own), you could temporarily lock yourself out from using a Job that needs that weapon.
Once you get the materials, you can use them upgrade the Equipment Effects of your current gear. You can choose any Equipment Effect that a piece of gear has, and choose how much you want to upgrade it.
The materials needed for the upgrade have to match that item’s Rarity. So, if you’re missing materials, try Dismantling more gear of that Rarity grade until you have enough for your desired upgrade.
At first, the Smithy will only be able to work on gear up to 4-star rarity. However, once you clear the Side Mission ‘Indigo Memories: The Damned,’ Smithy will be able to work on 5-star equipment as well.
Furthermore, once you finish the Side Mission ‘Indigo Memories: The Trapped,’ the Smithy will gain the ability to modify the Equipment Effects of your gear.
Once you’re in the Modify menu, pick the piece of gear you want to modify.
Now you can pick any of the three Effects that you want to replace.
Once chosen, you will see a list of all of the different Equipment Effects you can replace these with.
The materials needed to modify a piece of gear will vary depending on what effect you want to put on the piece. But, just like with upgrading, the materials needed have to match the item’s rarity.
The final upgrade for the Smithy is unlocked once you complete the Side Mission ‘Indigo Memories: The Stabbed.’ This upgrade will allow him to increase the Affinity of any piece of gear that has one. In order to make these upgrades, you will need Crests for the Affinity’s corresponding Job. For example, to upgrade the Dragoon Job Affinity for a piece of gear, you will need a certain amount of Dragoon Crests.
You will start finding Crests once you either complete the main story, or complete the Mission that unlocks this feature. They can be found randomly in chests, and enemies will have a chance to drop Crests that match the two Jobs that you are currently using.
Increasing Item Level (Trials of the Dragon King)
In the Trials of the Dragon King DLC the Smithy has the ability to increase Item Level of a piece of gear. The only resource needed for this enhancement are Anima Crystals, though the specific amount required depends on the equipment’s current Item Level.
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I'm a huge gamer who especially loves the Final Fantasy series. I will play just about any game, especially if it has anything resembling a Dragoon.