@nachojackson solved the issue for us. We had a group new the edge of the icon canvas with the "blur" effect enabled. Disabled the blur which seems to stop the auto-compiled SVG from having an alpha channel.

We're having the same issue, but live on the production App Store. 100% of user downloads are failing to install. I can confirm that increasing the watchOS minimum deployment to 8.7 worked for us. Very frusrating, several $k lost. All tests worked beforehand and passed App Store review.