What happens to PSCredential obejct when connecting to O365 using Connect-MSOLService cmdlet

Hello all,
I've been trying to find this information on Google but I've come up short.
Basically what I want to know is how the PSCredential object is treated when connecting to O365 via the Connect-MSOLService cmdlet.
For example, running the following code creates a secure PSCredential object
$cred = get-credential
Now I can run the Connect-MSOLService cmdlet to connect to O365 like so:
Connect-MsolService -Credential $cred
My question is, how are the encrypted credentials treated when passed to O365 via the cmdlet? Are they decrypted at any point, or does O365 create a similar secure string and compare the hashes?

Start here
https://products.office.com/en-us/business/office-365-trust-center-cloud-computing-security
You can also post in the security forum for more technical details.
¯\_(ツ)_/¯

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