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I've been pulling my hair out trying to understand what's going on here.

I have an image which is of a book and its shadow. The book part is opaque, and the shadow part has semi-transparency. This is shown here with a plain white background so you can see it. The background is actually transparent.

Smart Object Contents

This is then made into a Smart Object, and scaled down, and placed on top of a background. Now, out of nowhere, a pixel of transparency appears at the border between the opaque book and its shadow:

Pixel of Transparency

To be clear, the book and its shadow are a single raster pixel layer inside the Smart Object; and there is no empty pixel between them!

Anyone have an idea what is going on?

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The issue is because of the used image interpolation method: probably it's set to Bicubic Automatic. The thing about this method is that it applies additional post-processing to make image look better, which includes some sharpen. And this halo along the edge you see is a result of this processing.

When transforming normal layers it's possible to set image interpolation from the free transform modal: so setting interpolation to Bilinear would solve this issue.

enter image description here

However for whatever reason this dropdown isn't available for smart objects: they use interpolation method that is set in Photoshop preferences.

So to solve this issue, set Image Interpolation in Preferences > General to Bilinear and edit your smart object again. Here's a quick comparison: with Bicubic interpolation on the left and Bilinear on the right:

enter image description here

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    Good answer. Another thing which would maybe improve the result would be to not scale the image of the book down, but scale everything else up and wait with the downscaling until the end.
    – Wolff
    May 3, 2019 at 19:13

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