Final update: I managed to salvage it by persevering with my approach above of abrading the edges with 800 grit. I wrapped it around a coin to get a thin edge to protect the decal. I then sprayed a couple more thin coats over them before a final thick coat. I immediately removed the masking tape after spraying the thick coat. Results are in the pic below:

https://imgur.com/cQE1j9b

From this project, I'd suggest the following procedure for waterslide decals on powder coat

1) Mask off area you intend to spray clear coat (outline of decal plus offset to allow overlap over decal edge)
2) Rough up powder coat in masked off area with fine grit (800 or higher?) wet and dry
3) Clean, degrease etc.
4) Apply water slide decals as per their instructions & press down with a damp cloth to help avoid silvering
5) Use solvaset (or similar) to soften decal and suck back onto abraded surface (Disclaimer: I havent tried this personally but it others mentioned it and it makes sense, especially if you have roughed up the surface. Otherwise skip the pre-roughing up if you don't want to use solvaset)
6) Allow to thoroughly dry & wipe off any excess glue with damp cloth
7) Spray masked area with numerous fine clear coats. I found just one thick coat can get past multiple thin coats and cause the decal to craze and crack!
8) For the final coat make it thick(ish) but concentrate it around the edge of the masked area
9) Immediately pull off the masking and even push down on the edge of the clear coat if its started to set and pulls away when you remove the masking
10) Allow to thoroughly dry before re-dressing the frame

Hope that helps someone. Feel free to suggest modifications or thoughts if you have more experience