Nidavellir, land of the dwarves, is also called Svartalfheim, for the dark elves dwell
there according to some; though the distinction between these is not entirely clear
to me, and I refer you to those with more expertise in unraveling it.
Loki the Trickster had traveled there by obligation - for having snuck into Thor's bedroom one night and cut the beautiful golden hair of his wife Sif from her head, he found himself in such a bind as only the God of Thunder's rage can cause. He begged and pleaded with the sons of Ivaldi, whose craftsmanship he sought, and promised them the gods' affection and due recompense if they would spin Sif new hair. This they did, and more besides, for they didn't wish to waste the forge's heat and also made Gungnir, a spear for Odin, and the ship Skidbladnir, which Freyr would be able to take apart and carry about with him when he did not need its use.
Thanking them profusely - so much that they were knee-deep in a puddle of flattery by the time he was finished - Loki slipped off with the treasures. He had almost left Nidavellir entirely when he had an idea, and because he could never refuse a scheme, he turned around and walked to Brokk and Eitri's caverns. To these dwarves he showed the others' craft, and told them that no one could create finer artefacts for the gods; to which, of course, they bristled, and insisted that their skill was greater. "I'll bet my head it's not," said Loki, and in no time they were huddled over their own forge, pounding away at masterworks of their own.
Loki had a plan, of course; for Loki always has a plan. While they were busy by the fire, he became a fly, and once, twice, thrice he perched upon Eitri while he pumped the bellows, seeking to distract him with repeated stinging. The dwarf endured his torments, though, and soon they followed him to present the gods with three objects more amazing still: Odin's arm-ring Draupnir, which dropped eight more of its weight every nine days; and Freyr's boar Gullinbursti, whose golden bristles shine even on the darkest night; and finally Thor's hammer, Mjollnir, short of handle because Eitri had paused to swat the fly from his eyes but still a fit weapon for defending Asgard from giants.
The gods judged against Loki's side of the bet, and fairly so, but just as Brokk walked forward to rid the world of him, he cried, "You may have won by head; but you can't have any part of my neck!" The dwarf, infuriated, grabbed hold of Eitri's awl, and snarled, "You speak nothing but deceptions. I think that everyone is sick of hearing them, so I'm going to put an end to it." He pierced the god's lips nine times, and drew a leather thong through the holes to sew shut Loki's mouth.
Later, the Trickster threaded the string from his punctured lips; and winding it first around one hand, and then the other, he contemplated his revenge, and began to smile crookedly.