Hi,
On high level, it would be something like this: Create a grayscale noise pattern. You could then use the gradient of colors (from black to white), to select what you show. Then it’s just a matter of adjusting the thresold from 0-1 to fade out your sprite.
For pixelation, you could adjust the scale of the “tiles” you want to use by manipulating your UV coordinates if your “pixels” aren’t actually a real pixel size.
EDIT: Looks like I have answered to a similar question, see this thread for an example graph: