During a recent research project, I stumbled upon Asher Zhu's Niagara fluid simulation (https://www.artstation.com/vuth , https://www.youtube.com/watch?v=-cKgZrrBJ2w ) and Andras Ketzer's (https://twitter.com/fluidninjavfx) implementation in his FluidNinja plugin.
The concept is, that one emitter reads particles, writes them into a 2d grid which can be manipulated using Niagara modules or just straight HLSL and then writes the (modified) contents of that grid to a render target, which can be an external asset or a Niagara emitter component. This render target is then displayed as a billboard sprite, creating the effect.
Official UE4/5 documentation about this is rather scarce, unfortunately, but there is one effect in the 4.27 Niagara content examples which addresses reading/writing Grid2D components specifically, which was a good starting point.
Ultimately, I was able to build something that fundamentally works similar to the two examples that inspired this particular effect.
First working implementation, consisting of 3 emitters at the time and writing into an external render target asset instead of an emitter component. Notice, how the particles collide with the nearby geometry.
Final implementation with a single emitter handling particle projection and a random source particle. Color is now again based on the particle and not on the material used by the projection and no external asset is required.
The same particle projection emitter used on my previous effects (https://www.artstation.com/artwork/nEwLKO), capturing the particles created by the dissolve to create a unique look and proving that it works.