It wasn’t completely the fault of the citizens of Atlantis that their flying city sunk. Monster hunters one day arrived and began sowing dissension among the people. Riots led to the destruction of the techno-magic engine that allowed the city to fly. The city crashed then sank into the sea. The phantasmic energy leak from the engines mutated the people into merfolk. The spill also mutated the nearby sea life into intelligent creatures and changed the water so that people could speak underwater and light fires.