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I suspect there's no firm answer to this, but I'd be interested in opinions especially if there are some hints in the various extra Sandman books (I've only read the 75 comics).

Daniel says the person responsible for Despair's death will be in agony for the rest of time and that fits with Loki being bound under the serpent. It also seems in character for Loki, especially if Daniel's statement indicates Loki devised the murder but didn't actually do it himself. Having said this, I guess it would have been mentioned at some point if Loki was responsible.

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That seems unlikely, since Loki's punishment is part of non-Sandman Nordic mythology, where he is punished for his trick causing Baldur's death:

They brought him to a cavern and they bound him to three sharp-pointed rocks. There they would have left him bound and helpless. But Skathi, who was of the fierce Giant brood, was not content that he should be left untormented. She found a serpent that had a deadly venom; she hung the serpent above Loki's head. The drops of venom fell upon him, bringing him anguish drop by drop, minute by minute. So Loki's torture went on.

I don't think even Gaiman can retcon Baldur's death just to squeeze his own personal mythology in. He has to work around the established stories. :)

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    Yeah, the first Despair must have died eons before humans existed. Plus, Loki was brought out of eternal torture in Seasons of Mist, and I don't think Sandman, great host that he is, would have taken it lightly to have the person who caused Despair's demise in The Dreaming.
    – MPelletier
    Commented Aug 21, 2012 at 20:06
  • @Avner what are you trying to suggest with that last paragraph? Gaiman can do ANYTHING! ;)
    – dlanod
    Commented Aug 21, 2012 at 22:00
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    @Avner That last paragraph makes me recall a certain Gaiman book. :P
    – Wilerson
    Commented Aug 21, 2012 at 22:46
  • I'm not sure that Sandman pays that much attention to strict compliance with existing mythology. It would be a long stretch to equate Baldur with the incarnation of Despair, but then Destruction seems a nice chap so the person fulfilling the role need not necessarily have the same attributes as the role. Unless Gaiman gives us some clues in the forthcoming prequel we'll never know, but I don't think your argument against is conclusive.
    – John Rennie
    Commented Aug 23, 2012 at 8:14

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