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He's in the Children's Workshop there.
One of them has two dialogue options, and the second one (possibly if you have a specific sword?) should lead to the exchange-with-wax option.
You need Toby's sword and the piece of wax Liz gave you as Israra says.
Where do I find Toby's Sword?
When Liz gives you the quest she gives you Toby's Blade. It's not sellable.