Diamonds are an extremely rare material you can get in as dropped items from Legendary creatures. Only two Pals in the game can possibly have this material, but both are fairly hard to find in the open world. Collecting Diamonds is a great way to make money with the various merchants if you need to fund projects back at your base.
The two Pals who leave Diamonds as loot are Jetragon and Frostallion, who are both Level 50 when you encounter them. Jetragon is a Dragon-type Legendary that is weak to Ice-type Pals, while Frostallion is an Ice-type weak to Fire-types in. Make sure to bring members of your team that take advantage of all the Pal types and weaknesses present in either boss fight against these creatures.
Assault Rifles and other powerful firearms are very useful against either Frostallion and Jetragon, so equip the strongest guns you have before you travel towards either of these Legendary beasts.
Frostallion can be found in the Land of Absolute Zero at coordinates (-357, 508), and Jetragon rests in the Beach of Everlasting Summer near coordinates (-789, -321). The waypoints in both of these areas are night next to either boss in. This gives you a good opportunity to gather whatever supplies you need to challenge whatever Legendary you have the best team to go up against.
Jetragon and Frostallion are considered Field Alpha Bosses, but anyone who has reached the highest level in should not have too many issues taking down both creatures with ease. Watch out for the variety of attacks used by these massive Pals, such as Jetragon's Fire Ball. The large health bars of each Legendary make them tough opponents even if you have Pals that exploit their vulnerabilities.
The possibility of a Diamond dropping from a Legendary are very slim, so you may have to defeat these beasts many times. It is recommended that you catch each creature at least once to maximize the drop chances of this rare material. Having a Jetragon or Frostallion can also be very useful for Pal
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