The water balloon is a powerup that can be used in multiple ways.

If you are behind an opponent, hold and release the C Button to launch the water balloon in their direction. If it hits someone, they'll be briefly knocked to the ground!

If you are in front of an opponent and want to stifle their pursuit, hold and release the C Button to spike the water balloon on the ground behind you. If your pursuers are close to the water balloon explosion, they'll also be knocked to the ground!

If you hold the C Button, your skater will brandish the water balloon, but will not release it until you release the C Button. You can pick up a second powerup while the water balloon is in hand, but you can't put the water balloon back once you take it out.