When you finish the two scouts, you should find a journal in the body of a dead smuggler. The journal records how the smugglers intentionally woke the creature Crassinas that is sleeping in the caves. The strange things happen in the town now start to make sense.
You will meet your next challenge when you go east. There is a puzzle waiting for you to solve. You need to open a door by using water barrels. Here is how:
Near the door, there is a box in which you shall find Valve inner wheel, Pitch and Valve outer wheel. Combine the outer wheel and inner wheel to make Valve wheel. Then use the wheel to repair the hole of the middle barrel, and use the pitch to repair the leaking pipe beside the door. After fixing, turn on the valves on all barrels, in a direction from northeast to northwest, making water flow across all barrels to unlock the door.
Behind the door is another cave where missing townspeople are trapped inside Crassian pods. But it is not the right time to save them, just let them be and go kill the scouts. Among many chests in the cave you will be able to find 125gp and an uncut sapphire, do not miss the chance. Then cross over a broken barrier to find a Crassian warrior that can kill you with a single bite if it finds you. You should avoid attacking him and pull lever on the wall to activate a spike trap in order to kill it. After killing the warrior keep going deep into the tunnel.
Soon enough you will meet a barrier that stops your way. Behind the barrier is the second warrior who also cannot be confronted directly. You should use the same method to kill it by pulling the lever on the wall. When it’s dead, destroy the barrier and march to the next room. The third warrior is in the room. You have to sneak through room without being spotted, once into the third room, just pull the lever again to finish the warrior and clean the barrier afterwards.