Destiny 2 YouTuber MoreConsole shows how it works. He was given the footage by a player going by the name Mythical Random, who was the one to discover where the Loot-a-Palooza key comes from.
Defeat Calus in the Leviathan raid
Now that Faction Rallies is active in the game, the Loot-a-Palooza key was found to drop from Calus, the final boss of the Leviathan raid. The key is a random drop, not a guaranteed one, so players will have to get a lucky drop once defeating the final encounter of the raid. If players are able to get it, next they will need to head to the Tower.
Go the Loot-a-Palooza Monitor
The Loot-a-Palooza monitor is located in the hangar behind where players will find the Dead Orbit vendor. Go up the stairs to the left behind Dead Orbit to find it. Press the button to activate it. That will kick off a timed public event within the Tower itself.
Find Cayde’s treasure chest
The event will spawn a treasure chest hidden by Cayde-6 somewhere in the Tower. It will be marked with an objective marker, but it will require some platforming to get to. Once reaching the chest, head back down to the Dance Party monitor.
Start the dance party
Lights and music will start to play in the Tower and a chest will spawn nearby. Any player currently in the Tower can participate and open the chest. Mythical Random only received 250 Glimmer for completing this Tower event, so unless there’s more to it (or unless there’s a bug) it looks to be a fun, hidden activity more so than anything that is going to give out a considerable reward.
Destiny 2 is out now for PS4 and Xbox One, and releases on October 24, 2017 for PC.
Source: MoreConsole