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You still need Overlay in that case. The reason for this is that overlay segments are used both for the keepalive mechanism between Edge Nodes in an Edge Cluster and also for communication between T1 SR and T1 DR.
Fully reproduced this in my lab now
You indeed need an overlay transport zone and your Edge nodes need to be part of it. Host transport nodes do not have to be part of it.
Keep in mind there is no Tier-1 DR involved in this set up, only SR.