While in Svartalfheim, after you’ve visited Nidavellir, you’ll come into a rather large open-world section called “Bay of Bounty.” In order to ‘Free the Lyngbakr, you need to initiate “The Weight of Chains” favour.

This can be done by sailing out to a place called “The Watchtower” which is slightly south of where it says “Bay of Bounty” on the map (it’s slightly west of Radsvinn’s Rig, if you picked up the “In Service of Asgard” mission in Nidavellir.

When you go to the Watchtower, you’ll come across a door that requires a key. Mimir will make a comment that it’s on the island by the large geyser. Head to that island and the side quest, “The Weight of Chains” will initiate.

This quest requires you simply cut three chains from Lyngbakr Island, and then visiting the south-west section of the island in the boat. Do all that and this trophy will be yours.