Your IP address will remain visible to anyone in the same network as you, because yes, it is needed for communication with the VPN server.
In most configurations, though, users in the same network will only see packets going from/to the VPN server, while the final destination will only see the VPN server's address. In other words, the VPN will hide where the packets go. With encryption, it also hides what you are sending, so in the end it does not really matter; after all, the same network probably has tens or hundreds of other users with similar IP addresses. Ditching the IP protocol completely would make you more suspicious.
you vpnserver webserver
[10.142.257.16] ↔ [8.613.50.9] ↔ [193.419.61.11]
other users here see