Here are detailed information about relay emails from Exchange online: How to set up a multifunction device or application to send email using Microsoft 365 or Office 365
We can know that, the sender email address should verified and exist on Office 365, if you have verified @xyz on your Office 365, you could follow the Option 1 to relay emails from Exchange online.
If you want to send emails from a virtual domain, I would suggest you deploy an Exchange on-premises, then relay email from Exchange on-premises. For more detailed information, you could have a look about this article: Allow anonymous relay on Exchange servers
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