Might have to go old school if you want to use up the rest of that leather. Might be worth a try. Cut out a piece larger than your sheath. Put the leather in water in the sink or bath tub till bubbles stop coming out of the leather. Wrap in a towel or a wool blanket pretty well, no leather exposed. Leave overnight. This is called casing. The next day your leather will be very pliable almost plastique. Trim your sheath to size, then fold and shape your sheath. I'd be pretty certain your leather will not crack now. You can fit welts now and handsew up the sheath. If you are machine sewing I'd allow the leather to dry first and then sew. Wet mold to knife if necessary if you had to let dry. If you hand sewed ya can still mold the leather to your sheath after sewing while the leather is still cased. Then dry the sheath. I would dye the sheath after it is dry. Then a light coat of oil wiping any excess off with a paper towel. Then a light coat of a cream conditioner light Oakwood or Skidmores, again wiping off any excess right away. Let dry a little and then apply finish. What dye are you using? I really hate dyeing leather. I've found that a sheath dyed has about half the life span of a sheath not dyed and just oiled. Saw this too many times with sheaths. Same owner, same rough ranching conditions, just used and abused. A dyed sheath will crack and the oiled sheath will look like it has been drug behind the truck across the desert but its not cracked. Saw this many times so I quit dyeing sheaths after the first three or four thousand. So there are lots of my old dyed sheaths out there being used. Every once in a while I'll get a knife and sheath back for a new sheath and most of the time those old dyed ones are cracked. Yet I've seen one that was worn so much and so hard that the belt had literally worn through the leather and into the sheath cavity. Yet the leather was still good not cracked, the sheath was undyed. Makes a believer out of ya after a while.
Nuther reason I don't like dyeing is dye transfer. Ya think ya got it all sealed up good and then your customer wears his black sheath with a white shirt or on a pair of chinos. Aww not so good. Right now I have three finished holsters sitting over on a corner of the bench. After two shows and living in a container (like all our other In Stock items) in side the house I can't sell these holsters. How come? After kicking around to the two shows and living with a black dyed holster in the container they have dye transfer on them. Can't sell em anymore. Black spots right in the middle of the front of the holsters. One had a dye transfer spot on the back and I just gave that one to a friend. I hate dyeing leather. As
C
camaroless
said pre dyed leather by the tannery is the way to go.
So in your latest attempt there I think it was order of events that caused your crack. The dye just made it worse. Try it how I out lined above and I think ya'll be ok. Even hating dyeing like I do last batch of 70 I got talked into dyeing 4. Bah Humbug.