[Mashiro]

The way it looks like you didn't really size the image on the second layer. You used something like a transformation tool which lets you kinda "resize" the image but what it does is literally squeeze together the image. Hence why it looks so absolutely weird and pixelated.

Or it's just a photoshop thing. I never used that software myself properly. Only a few times with a Youtube tutorial to create small userbars. This was literally years ago. Sometimes a simple thing can be turned into something really hard by complex software such as PS.

I suggest to use the normal Windows Paint to resize the image you have on layer 2 to the size you need. Try it and see if it still looks so weird.