Hello Fakhar
Yes, you can create a VXLAN underlay using VLAN interfaces or SVIs. It’s not mandatory to assign IP addresses directly on the physical interface. In fact, using SVIs can provide more flexibility, scalability, and ease of management. You can assign IP addresses to the SVIs and use them as your VTEP endpoints in the underlay network. This can be particularly useful in multi-tenant environments where you need to segregate traffic. Just make sure your network devices support this configuration and the VLANs are properly trunked across the necessary switches.
I hope this has been helpful!
Laz