King overpowers and single-handedly defeats Guila using his Sacred Treasure, the Spirit Spear Chastiefol. As Meliodas, Elizabeth, Hawk, Diane, Ban and King return to the village, King tells the others that the Sacred Treasures of the Seven Deadly Sins unlocks each of their full potential in combat. However, Meliodas sold his, Diane lost hers and Ban got his stolen. Meliodas, Ban and King head to the Merchant Town Vaizel during the annual fighting festival, in which the grand prize happens to be Diane's Sacred Treasure, the War Hammer Gideon. Meanwhile, Great Holy Knight Hendrickson summons Jericho and Twigo underground, offering them blood from the corpse of a red demon as a means of enhancing their strength. Twigo explodes after drinking the blood, but Jericho manages to survive the excruciating experience.

The fighting festival starts with an elimination round that results in eight contestants left standing. The first round of the quarterfinals is Holy Knight Griamore versus "Matrona", in which Matrona manages to break Griamore's barrier and send him flying. Matrona is revealed to be a shrunken Diane wearing Elizabeth's clothing. Diane and Elizabeth previously encountered a giant mushroom called a Chicken-Matango that shrunk them both when it felt threatened. The second round is Holy Knight Howzer versus three-time champion Taizoo, in which the former defeats the latter with one punch. The third round is King versus Cain Barzad, a drunken old man. Since King is nearly powerless without his weapon, Cain easily knocks King out of the ring. The final round is Meliodas versus Ban, and Howzer learns from Griamore that the two are members of the Seven Deadly Sins.

Meliodas and Ban engage in a fierce fight that shakes the ground beneath them, equally matched due to their incredible strength and agility. However, Meliodas grabs onto Ban's wrist and blasts him out of the ring, thereby winning the round. The first round of the semifinals is Diane versus Howzer, in which Howzer goes all out with his windy punches, but Diane does a body slam on Howzer and wins the round. The second round is Cain versus Meliodas, in which Cain believes that Meliodas betrayed the kingdom in the past. When Meliodas says that he did not betray the kingdom, Cain trusts Meliodas and forfeits the round. The round of the finals is Diane versus Meliodas, while Guila and Jericho are making their way towards Vaizel.

Guila and Jericho interrupt the tournament and cause terror upon the merchant town. King subdues Guila and Jericho after Meliodas and Ban are defeated by them, but King is later overwhelmed by Holy Knight Helbram, who was disguised as tournament referee Love Helm. Meanwhile, Elizabeth returns to her normal size and stumbles upon her elder sister Veronica Liones, who scolds Elizabeth for being involved with Meliodas. Veronica then traps Meliodas inside Goddess Amber, a stone specifically made to seal demonic beings. Elizabeth runs away with Meliodas's sword and Goddess Amber, while Griamore temporarily restrains Guila and Jericho. Veronica catches up to Elizabeth and shields her from an explosion made by Guila, which causes Veronica to pass away. When Elizabeth calls out for Meliodas, he emerges from within Goddess Amber with a darker side to him.

Hendrickson unveils the source of his power, the corpse of a red demon, which is the same one that Ban slayed in the Fairy King's Forest long ago. After Ban pummels Hendrickson through the ground, Meliodas, Ban, King and Gowther jump down the hole to a cave, where Hendrickson injects himself with the blood from the corpse of a gray demon to acquire even more power. A sudden burst of energy from Hendrickson sends the four of them back above ground, where Hendrickson easily overpowers all of his opponents despite all of their efforts. With Meliodas left standing and protecting Elizabeth, Hendrickson casts a large dark blast, but Hawk sacrifices himself in order to save the two of them. Shocked of losing her dear friend, Elizabeth awakens her dormant powers that repels Hendrickson and heals everyone else. However, Hendrickson survives and still has strength left in him to fight.

With the capital retaken and the Liones Kingdom slowly getting back on its feet, Meliodas, Elizabeth and Hawk turn their attention to the Boar Hat.

Diane confronts Gowther after he manipulates Guila and Zeal's memories. With the return of the Demon Clan, new threats descend upon allied clans.