Xiao is a yaksha. Yakshas are related to Sumeru. Chasm is at southwest Liyue, probably next to Sumeru. Hence Xiao's artifact is in the chasm. QED.
Xiao's artifact (Vermillion Hereafter/VH): the 4p gives 48% ATK, equivalent to an R5 TTDS buff. Can expect a 10-33% increase in damage depending on how many other attack buffs you are using. For example, if you are not using Bennett/Pyro resonance/Noblesse/ToM/TTDS, the increase in damage can be larger. See formula for details.
The EO artifact has a random component built into it. It can be used on characters that rely on NA for most of their dps (e.g. Yoimiya, Razor, etc.) Note that the Gladiator set and Shimenawa set also exist.
The dark mud mechanism seems similar to the corrosion effect in the 2.5 Enkanomiya event, where you had to use the Bokuso box to dispel the corrosion to defeat enemies and solve puzzles.
Serpent knights feature in the chasm and intermediate quest. For example we fight one villain named Buliwyf.
On top of the nail there is a chest
Xamaran is a giant mushroom from Sumeru. Xamaran's quest involves clearing out dark mud.
Chasm starshrooms are different from Sumeru starshrooms. Chasm starshrooms will not transmute when applying pyro or electro.
We journey to the Chasm and meet Dainsleif and Halfdan (哈夫丹) in the upside down city. Inteyvat is the national flower of Khaenriah. Dainsleif's goal is to stop the Abyss and the traveler's sibling. We also finally defeat the hydro abyss herald from the 1.3 and 1.4 quests.
When an Abyss Lector activates a device that causes pain for hilichurls, Halfdan sacrifices himself to stop the device. When Halfdan asks Dainsleif if Khaenri'ah fell, Dainsleif said no (technically Halfdan asks Khaneri'ah did not fall since you're still here, and then Dainsleif says it didn't, so there's no need to revive it). Halfdan's soul then rests in peace.
Featuring the yakshas, fushe, and chaotic spacetime deep within the chasm