The current version of dracut has an overlayfs module.
The version in the Arch repos is out of date due to packaging dispute between dracut and the Arch maintainers about signing.
The result of that the repo version is 3 major versions out-of-date. When we last it looked into it it seemed like that was on-track to getting resolved. It seems that still hasn’t happened.
We may need to look into packaging dracut ourselves.