i don't think the way the terrain is made supports waterfalls

The water mechanics in valheim don't really support waterfalls. The entire worlds water is at a static level. Tar pits are an exception, they could add another exception for waterfalls, but I highly doubt we'll ever get water pooling because of rain, or running off of mountains, or flash floods.

Only waterfalls I know of are at the edge of the world. Check them out with a raft (and don't bring any gear you're afraid to lose) :)