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VXLAN defines a MAC-in-UDP encapsulation scheme where the original Layer 2 frame has a VXLAN header added and is then placed in a UDP-IP packet. With this MAC-in-UDP encapsulation, VXLAN tunnels Layer 2 network over Layer 3 network.
In VXLAN all the learning about the virtual machine MAC address and its association with VTEP IP is performed through the support of physical network. One of the protocols utilized in the physical network is IP multicast. VXLAN makes use of this IP multicast protocol to populate the forwarding tables in the VTEP.