No voxels, I use distance field ray marching. I wrote an article a while back, it describes some of the tech, not the terrain deformation though.
https://medium.com/@bananaft/my-journey-into-fractals-d25ebc6c4dc2
There is no meshes (apart form man made stuff), no voxels, no terrain representation in the memory whatsoever. It's like I'm generating the world in every pixel to render it, and around each physics object to calculate collisions. Everything is generated on the spot. That way I can animate whole world, or have limited number of local deformations.
Okay, final thought. There's a lot of talk about different gameplay elements, enemies, etc. and I had an idea: what if the terrain itself was a sort of "enemy"? Like, it's sentient and tries to harm you. Maybe not all the time and not in all areas, but I think it'd be an interesting concept. I don't think any games have really done something like that and this is the perfect setup for it.