
has great synergy with

(mind flayers, fractal), so a quinted water demon would not be hard to achieve, especially if you run multiple quints (eg. for mind flayer or squid).
On the other hand

has little synergy (trident) but I think it would be hard to make a good deck with PA+inundation for a protected flood.
Thus water demon would be like a better flood, dealing damage, easier to protect... yes, I think it would make flood/inundation obsolete. Especially because it gets rid of one of floods weaknesses - uselessness against decks with low amount of creatures - because it at least deals some damage.
On the other hand it would suck to get one out of a fate egg or mutation

Imagine a mutation deck with a field full of mutants, and then you accidentally mutate something into a water demon and it kills 2/3 of your creatures xD (it's a passive ability, so it would work even though it's a mutant)
I like the art and the name, but I think it's better to leave this ability to the permanent and think of some other ability for this creature.