Issues with transparency during .tex conversion

[PKBeam]

I'm trying to convert .png files to .tex files.

I have a .png image and I'm trying to completely clear all transparent pixels around it (otherwise I get compression artifacts when converting).

I do this by selecting the transparent area in an image editor (paint.NET) and deleting it, as shown below.

The resulting .tex file looks fine when I inspect it, but in-game I get this result:

The conversion is using DXT5, and this issue does not occur when converting with BC1. I assume this is because BC1 only uses 1 bit to store alpha.

Why is this issue occuring, and how do I fix it? (I'd rather not use BC1 to convert.)

[Ultroman]

Please include the images you are trying to process. Perhaps also your resulting .TEX file, so we can inspect it all.

[PKBeam]

I've attached the paint.NET edited image along with the .tex output.

I retried this with Pixelmator Pro and the artifacting is gone now.

I would like to know what was causing the problem though. The transparency on the paint.NET-edited image does display fine on all image editing/viewing software, so is this a problem with paint.NET, or is it actually an issue with the texture conversion process?

assets.zip