So, I’ve been using Material Functions for a lot of things, and have noticed something that appears to be a lack of functionality. Currently, as far as I can see there is no way to mark material functions for use with transparency. This doesn’t seem like a problem until you start using nodes that cannot be used on opaque materials (such as the Scene Color node), and refraction (which only works if you break out the material attributes). As far as I can tell, these simply cannot be correctly used in material functions, and this seems extremely lacking.
You are right in that this is in fact a bug. However, if you actually plug this function into a Translucent node then the warning will disappear. What is happening is that by default a Scene Depth node looks for Translucency. Since you have not actually assigned this to a a Translucent material yet this warning appears. This warning should not appear because, frankly, there is no check box to say, “hey I’m assigning this node to this material don’t warn me.”
I have put in a ticket and this will be brought to the attention of our development department. The ticket number is UE - 18629