We don't know but at a Pax East 2015 interview with Koji Fox he said that we would find out what the deal with Silvertear Lake was, what was sealed under it and what Midgardsormr was guarding in the 3.x cycle. So its likely to come up in the ongoing patch story.

My guess is the reason Midgardsormr didn't get involved with the Allag may have to do with whatever his compact is. I'm guessing since the dragons sound like they aren't native that his guardianship was one of the conditions he had to allow the dragons to live upon the planet.