Pretty cool looking and definitely not intended behaviour lol. First time this bug happened for me was on my main island. Damage testing on a dummy when the world turned monochrome.
This bug has been reported in the past, but if you'd like to report it officially use this link: https://script.google.com/macros/s/AKfycbyKbpUzz_3nSN1uX6N_urTZFOWumd5UsRhKbBtYRJClMudCoyE/exec?lang=en
The developer does not check this reddit, and thus won't know about any new or reoccurring issues. The link is to a form created by a fellow moderator and community manager, and will send a copy to the discord as well as the devs themselves. This video will help greatly if you send the .mp4 with the report. (All files are uploaded at form submission.)