You can do rounded corners on... corners.
Unlike the cliff tool, where you destroy for rounded corners, you build them with the water tool. This will produce a rounded corner.
X = Blank
O = Pre-existing water
C= Where to dig for a rounded water edge
So basically the mechanics will let you make a curve on a corner piece as long as there are two blocks of ground backing the block you wanted curved. So in this shape you can curve the top left corner piece
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In these shapes you would only destroy the block by digging any of them