Yggdra realises that in the good ending.
Here's what she says:
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Yggdra: It's true that this sword contains absolute power. Because of that power, it has sparked countless wars. All of which the kingdom emerged victorious. Over time, my family came to rely on this sword. But, that only leads to history repeating itself. The sword only offers an illusion of justice.
Milanor: Yggdra?
Yggdra: The world without war you mentioned to me. The world Kylier wanted. A world where everyone can live in peace. That's a dream I share. To achieve it , I must break the chain of hatred. If this is what it takes to do so. Then I gladly surrender my sword!