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Watch this, the water in this game reacts and ripples to physics objects, but it for sure isn't real 'dynamic' water (made of tiny balls).
http://youtu.be/bwxsSxX2HWM?t=7m51s
Has anyone got any insight into how this could be achieved?
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Perhaps something like this?
http://www.scirra.com/forum/1d-water_topic47386.html
That is awesome!