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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 this example, the virtual machine MAC1 running on Host 1 is associated with VTEP IP â10.20.10.10â. VTEP also checks the segment ID or VXLAN logical network ID (5001) in the external header to decide if the packet has to be delivered on the host or not. The packet is de-encapsulated and delivered to the virtual machine connected on that logical network VXLAN 5001.