As was shown in Soulcalibur, this is one of the forms Soul Edge took while being wielded by Nightmare. When Siegfried willingly reclaimed Soul Edge after killing the maddened court jester Isuka, he gave his mind & soul to the weapon, transforming into a frightening demonic warrior called Nightmare. With much of its power restored, Soul Edge also transformed with him, once again revealing the eyeballs it once had.