Based on the particles emitted when repairing a damaged building.

Uses "Position on Model," which means that the sparks will appear on the hat, no matter its size or shape.

This unusual effect also utilizes TF2's "Pyrovision" mechanic. During normal gameplay, the effect appears as usual. However, when a player is in Pyroland, such as by wearing Pyrovision goggles or using the Lollichop, the effect reflects this change, becoming rainbowed.

Credits:
Cipherlock - particles
Phe - promos