Demonscale is obtained by skinning the ur-maeldryth creatures in the Soul of Maelshyve area. It is a large, midnight-blue scale like those of Maelshyve, and isn't particularly great for leatherworking but can be used in armor. What value it has comes from the fame of defeating such terrible creatures. As a general principle, demonscale should not be dyed, as doing so removes one of its more iconic features and renders it somewhat indistinguishable from any other scaled hide (from a terrifyingly large and dangerous creature).
An version of this item, demonhide, was released in error during the Hollow Eve Festival 432 event. These items should auto-correct to demonscale once a player logs in.
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