First of all, since your executable1 needs to decode that literal in memory, any attacker determined enough will be able to do the same; often it's just as easy as freezing the process after startup (or after it needed to use the string we want), creating a memory dump and use utilities like string
over it. There are methods to mitigate the issue (e.g. zeroing the memory used by a sensitive string immediately after using it), but since your code is on a machine where the potential attacker has all the privileges, you can only put roadblocks: in the end your executable is completely in the attacker's hands.
That being said, if your concern is just "not leaving important strings en plein air" you may just run an executable packer/encrypter over your whole dll. This is as easy as adding a post-build step in your solution, the packer will compress/encrypt the whole executable image and build an executable that when launched will decrypt and run it in memory.
This method has the great advantage of not requiring any change to your code: you just run upx
over the compiled dll and you get your compressed dll, no XORs or weird literals spread across your code are needed.
Of course, this is quite weak security (basically it will just protect from snooping around in the executable with notepad or a hex editor), but again, storing critical "secrets" in an executable that is going to be distributed is a bad idea in first place.
- In the whole answer I "executable" is to be intended in the wide meaning - i.e. also dlls are included.