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Obsidian is an item found in the Shipwrecked DLC. It is used to craft improved versions of most Tools and some Weapons. It can be acquired by destroying Obsidian Boulders on Volcanos by explosives such as Gunpowder or Coconade or extinguishing a Lava Pool with Ice.
Obsidian can also be found surrounding a Volcano Staff, as a random item using a Trawl Net during the Dry Season, specifically in Shallow Oceans for the highest chance, and by rolling three gold nuggets (14.3% chance) with the Slot Machine.
Most of the items that require Obsidian as an ingredient can be crafted using the Obsidian Workbench found in the Volcano.