It seems that Slythe was suffering from some misplaced guilt over the events at Kvatch, and took a trip to nearby Sandstone Cavern. According to him, the cave hosts a creature called The Sunken One, that was responsible for the destruction of Kvatch, and he tried to defuse the situation by offering him a tribute of precious gems.
Unfortunately, his well-intended sojourn didn't work out, as the Hero will find him dead in one of the larger rooms in the final zone of Sandstone Cavern. It appears that the Sunken One has sealed his fate.
According to the first page of his journal, Slythe decided to rely solely on his will and his word when facing The Sunken One. He entered the cave with no weapons or armor at all, wearing nothing but monk robes and a pair of clogs. On his body, one will also find the third page of his journal, clearly a dying man's last words.