To use Liquid Matte Transitions, you must first apply the Track Matte Key Effect to the original footage.
This will allow your footage to come through the white area.
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To do this, go to Window on the top bar > click on Effects.
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In the Effects panel search for Track Matte Key
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Drag and drop the Track Matte effect to your original footage.
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Under the Effects Control > Track Matte Key > Composite using choose: Matte Alpha
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Under the Effects Control > Track Matte Key > Matte: choose the layer which contains the matte effect - Enjoy
