Palafin is flat out not broken. It doesn't really take much to see it - the mon just doesn't do the crazy shit it can do on paper because there are a lot of factors holding it back.
First, let's talk about brute strength, where Palafin excels most. Palafin's raw power is impressive but not so impressive to be particularly crazy or unheard of - it is normal to see 160 Attack and go "oh fuck oh god help me" but let's take a moment to compare it to some Pokemon that hit similar - or even higher! - damage numbers.
Its most direct competition is
Ogerpon-W, which it is nearly identical in strength to:
252 Atk Palafin-Hero Wave Crash vs. 252 HP / 0 Def Mew: 229-270 (56.6 - 66.8%) -- guaranteed 2HKO
252 Atk Wellspring Mask Ogerpon-Wellspring Power Whip vs. 252 HP / 0 Def Mew: 222-262 (54.9 - 64.8%) -- guaranteed 2HKO
Other mons that aren't banned and hit similarly crazy (or crazier) damage feats:
252 Atk Protosynthesis Roaring Moon Knock Off (97.5 BP) vs. 252 HP / 0 Def Tera Grass Mew: 217-256 (53.7 - 63.3%) -- guaranteed 2HKO
252+ SpA Protosynthesis Raging Bolt Thunderbolt vs. 252 HP / 0 SpD Mew: 219-258 (54.2 - 63.8%) -- guaranteed 2HKO
252+ SpA Protosynthesis Raging Bolt Draco Meteor vs. 252 HP / 0 SpD Mew: 315-372 (77.9 - 92%) -- guaranteed 2HKO
252 Atk Great Tusk Headlong Rush vs. 252 HP / 0 Def Mew: 198-234 (49 - 57.9%) -- 96.1% chance to 2HKO
252 Atk Protosynthesis Great Tusk Headlong Rush vs. 252 HP / 0 Def Mew: 256-303 (63.3 - 75%) -- guaranteed 2HKO
252+ Atk Supreme Overlord 3 allies fainted Kingambit Kowtow Cleave vs. 252 HP / 0 Def Tera Grass Mew: 205-243 (50.7 - 60.1%) -- guaranteed 2HKO
252+ Atk Rillaboom Wood Hammer vs. 252 HP / 0 Def Mew in Grassy Terrain: 271-321 (67 - 79.4%) -- guaranteed 2HKO after Grassy Terrain recovery
252+ SpA Gholdengo Make It Rain vs. 252 HP / 0 SpD Mew: 220-259 (54.4 - 64.1%) -- guaranteed 2HKO
252 SpA Protosynthesis Walking Wake Draco Meteor vs. 252 HP / 0 SpD Mew: 270-318 (66.8 - 78.7%) -- guaranteed 2HKO
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Now of course if it was as simple as "mon does no damage unban gg" then Palafin wouldn't be in Ubers to begin with, and it is still evidently hitting really hard. And to be able to do all of this without an item is very impressive; Palafin can slap on a Choice Band and put most of these to shame same for the latter three being able to keep up (and some other mons that see less use like Hoopa-U or whatever). But this power comes at a major price - Palafin cannot afford to spam Wave Crash all day long. Its HP is good but not so good that it can just click the button all day long, and if one does choose to do this then Palafin ends up being Staraptor 2; yes it'll kill something, and in the process it'll kill itself, and considering its defensive utility is limited to "it lives 1 from basically anything" it's pretty clear that that's not enough.
Yes it can do some silly shit in rain. So can basically anything with Wave Crash, lol; I spent the start of this gen tearing the ladder up with Floatzel, which was much scarier in rain than Palafin because despite the lower power level it has 600 billion Speed and that matters a lot more than the diminishing returns you get with the dolphin. But yeah it can 2HKO Dondozo which is funny on paper and useless in practice.
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So what about setup sets? The Bulk Up + Taunt variant is what got it banned early on, after all. And it's easy to see why when you consider how hectic the early gen was; everyone was still figuring out Tera, we hadn't yet figured out that stuff like Toxapex was in fact hit too hard by the nerf hammer to be any good, and the overall power level was still quite low so putting heavy damage into Palafin was not an easy task. Most of the natural counterplay back then was very passive and easily stuffed by Tera Steel or Poison (Toxapex, Amoonguss, etc). That isn't the case anymore.
There are, simply put, actual answers now. Dragapult can hard into Bulk Up Palafin with complete ease and win the 1v1 against anything but Tera Fire; it can still pretty comfortably neutralise that too, given how much its attacks do since Palafin is in that awkward bulky-but-not-that-bulky range. Alomomola can safely Flip Turn into anything you'd like to threaten it with like Ogerpon-W, Meowscarada, Latios or whatever else. Ogerpon-W itself is a massive deterrent to almost everything Palafin wants to do, especially Encore variants but it doesn't even need that. Sinistcha is the hardest counter one could ask for. And then there's stuff it's just not bulky enough for, like Raging Bolt, Primarina, Zapdos, and Keldeo all popping up.
Bulk Up + Acrobatics is a fair bit scarier; it turns some of these matchups on their head, especially Primarina and Sinistcha, but it also completely flounders against common counterplay in Raging Bolt and Zapdos and dropping Taunt leaves you with pretty significant issues against stuff like Dondozo, Skeledirge, and can be easily out-traded by stuff like Tera Ting-Lu and Moltres. It also gets wrecked by just about anything running Iron Defense now and obviously hates the fact that it doesn't have an item, which on top of the detrimental ability makes it a stat blob and nothing else.
An important part of all of these Bulk Up sets is that they are
not immediately threatening. Unless it can fit Wave Crash (or perhaps Tera Fight CC) it just isn't doing damage off the rip; Palafin is already a mon that gives the opponent free turns to do whatever they want, a death knell in SV, and this is something that is important to not overlook.
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I'm not going to go through every permutation here because you can name a counter for any of them and that's not really an impressive thing to do. The point is that all of these are actual common Pokemon that beat just about everything -
you do not have to go out of your way to beat Palafin, you can simply use common mons that already give it major trouble and beat it naturally.
The fearmongering here reminds me of Manaphy.

Does anyone remember when this thing dropped to OU in the DLC? It found its way onto multiple surveys and even a couple QB slates. And yet it's languishing in RUBL, only recently finding even the slightest niche in UU. By all accounts it's extremely similar to Palafin; same Speed tier, better bulk, much more dangerous boosting move, and a much better movepool that similarly lets it pick its checks and counters. It's also not beholden to any specific Tera type in the way physical attackers often are; it doesn't hugely care if it gets burnt for instance so no need for Tera Fire, nor is Tera Electric necessary to deal with Static Zapdos, that kinda thing.
The reason is simple: Manaphy is not threatening unboosted, it doesn't get instant KOs even after a boost, it isn't defensively sound enough to wall anything, and it's slow. These traits are all shared with Palafin. And yet, people saw that it could throw out massive attacks after a single turn spent boosting and voted to quickban it despite it having no actual results and, with a little time to let it simmer, no significant niche in the tier.
Now don't get me wrong - Manaphy is not bad. In fact, similar to Palafin, Manaphy is a menace on webs. The point is that kneejerk reactions are often wrong. This also applies to Palafin.
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Addressing the point of "needing" to free Palafin;
OU's existence is, at its core, founded on the idea of having every Pokemon that isn't too much to handle legal. Ubers existed for a long time solely as OU's banlist for this exact reason; if something isn't broken/uncompetitive/etc in OU then it should be OU legal.
With that said, I do believe in having *some* reason to change the status quo; even if it's not traditionally broken I would not advocate for freeing Espathra, for instance. So in short - Palafin is a rare example of a Pokemon that helps to deal with SV's explosive offensive playstyles without easily enabling them itself. It is difficult to fit Palafin onto HO because of its lacking initial power & detrimental momentum-sucking ability, but it gives balances another option for priority against things that can get out of hand and are hard to deal with our current priority due to their typing like Iron Valiant and Kingambit. It does this while being reasonable for these offense teams to account for - they're already commonly running the likes of Ogerpon-W, Raging Bolt, Dragonite, Primarina, and Zamazenta - but not being so easily handled that it's an afterthought. I think knocking these teams, which have been dominant and somewhat brainless throughout SV's history, a little further down the totem pole would be a good thing.
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I think this is enough word vomit for now, so I'll address the rest of my thoughts in a later post if any. For now, here are some teams with Palafin that I alternated throughout the suspect; I actually gave up on using it towards the end of my run because it just felt like an active detriment, and as soon as I started using non-Palafin webs I just won every game lol.
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Best of luck with laddering! I hope folks here take the time to mess with Palafin and come to the same conclusion I've found myself at; this Pokemon is nothing outstanding and the value it provides to the tier is visible and appreciated. Of course I'll continue playing over the next couple weeks in case any crazy tech is discovered but for now I feel pretty confident in voting to
unban Palafin.