Wet Sponge

The wet sponge is a variant of the sponge block that lacks its water-removing property. When placed, it emits water droplets from its sides and bottom, similar to the way any other block emits the droplets from the bottom when water is directly above it.

Obtaining
When an Elder Guardian is killed by the player, it will drop a wet sponge. Wet sponges can be found in some Water Dungeon rooms as well.

As a smelting ingredient
When smelted, an lava bucket in the 'fuel' slot gets filled and becomes a water bucket.