Long before the war of the gods the Elves and Humans of the now war torn jungle lands (near Rash'el) formed a peaceful society. They rose a massive city to the heavens by working together. The city was the trading hub and port for the primitive continent. All rivers passed by it and they controlled trade and travel in the region.
These were the days of legends and myth when Elf and Human were friends.
However a war broke out amongst the gods. No one remembers who was attacking who, but a magical spell hit the region, Sinking the subcontinent down into the mantle, flooding the massive city with water. (This created the common shoreline.) a few Elves fled into the jungles and became the ancestors of the modern savage elves... but the citizens of the city....
They would of died if not for a last moment magical spell created by their queen. A powerful forcefield went over the city using her very life force. This forcefield kept the water out and the citizens dry... but it was draining the beloved queen's life.
<Insert myth about offerings here> (got vague stuff in my mind)
Eventually she died... She spent most of her last few weeks trying to find a way to susstain the field.. but in a stroke of brilliance inspired by seeing dolphin's outside of the field, she realized transmuting the inhabitants to something that could breath under water would work better. She desperately spent her last week trying to do just this but died, her spell incomplete.
As the field fell and the wave of watery death came into the city the Goddess Hesmyr took strange pity on the people, and in a flash completed the Queen's final spell, transmuting the elves and humans into the current race. They retained their legs and lungs but now had gills and fins as well. Over generations they adapted to their new life.
Modern Day:
To this day the citizens of Malmar are largely neutral in regional conflicts, they have better relations with the elves than the people of Rash'el do, and are on semi good terms with Rash'el itself.
However a near by colony set up by a foreign trading outpost has come into conflict with the citizens of Malmar recently. During the first meeting between the groups Several young priestesses where kidnapped and forced into prostitution. Furthermore the Queen and King have disappeared, many people believe this was a plot by the colonist as well.
Many in the city talk of war at this moment, they are led by the young princess and priestess of Hesmyr who has been encouraging patience and nonviolence... but even the young princess is nearing her limits.