When scaling down, you don't have blurry output. You won't get pixel-perfect, but you get sharp enough. MacOS does the same for fractional scale. You get blurr

When scaling down, you don't have blurry output. You won't get pixel-perfect, but you get sharp enough. MacOS does the same for fractional scale. You get blurry when scaling UP. Xwayland does scale up, from 96 dpi to whatever fractional scale is set, so that's the reason why X apps are blurry. Native wayland app are not.