Waterfall Quest/Spoiler

Go to the hidden hole near The Blind Prophet (here). It is marked as light grey in the minimap.

Follow the cave to the west, and go up the many holes.

On the part of the mountain that you would be able to levitate, walk east instead and dive in the water. Go down the waterfalls and go north. You will be in a underwater cave. Walk south to the shore and get the pirate forgotten treasure inside a chest.