Palworld has broken Counter-Strike's all-time concurrent players peak at 1.8 million, and is now #2 most played game on Steam ever. It is only behind PUBG which holds the record at 3.2 million.

I think it's only steam.
It runs on steam, i host a server and sometimes got some big old frame drops. Otherwise it runs pretty well for me.

I have a minor conspiracy theory about the Game Pass launch: it almost seems like they made the game pass version intentionally worse/buggier. Still had fun gameplay but lacking features that a lot of people want, some odd oversights (e.g. no menu to quit the game in the PC game pass build, have to alt+F4) and more stability issues. That gives people a chance to try it, find out they like the game, learn it's better on steam, and then buy it there.
That's exactly what happened with my entire friend group (we also wanted a Private server for more people and persistent world regardless of who is online, which GP version can't do currently).
Rationally, I recognize that it's probably a matter of the build being different, limitations when running in the Microsoft ecosystem (though other games are about to connect to private servers, even if it's less straightforward) and the GP version is primarily for console (runs on PC as well, but the menu screens feel like console ones). But it certainly didn't hurt their sales that the Steam version was clearly better.