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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.
November 19, 2012 by Joe Onisick 14 Comments. The most viable competitor to VXLAN is NVGRE which was proposed by Microsoft, Intel, HP and Dell. It is another encapsulation technique intended to allow virtual network overlays across the physical network. Both techniques also remove the scalability issues with VLANs which are bound at a max of 4096.