VXLAN provides the following advantages:
Increases scalability in virtualized cloud environments as the VXLAN ID is 24 bits, which enables you to create up to 16 million isolated networks. This overcomes the limitation of VLANs having the 12 bits VLAN ID, which enables you to create a maximum of 4094 isolated networks.
Enables you to use the Layer 3 features of the underlying network.
The virtual Layer 2 network is abstracted from the underlying physical network. As a result, the virtual network is not visible to the physical network and provides the following benefits:
Removes the need to have additional physical infrastructure. For example, the forwarding table of the external switch does not grow with the increase in the VMs behind the physical port on the server.
Reduces the scope of MAC address duplication to VMs that exists in the same VXLAN segment. The MAC address can overlap when the addresses are not a part of the same VXLAN segment.
In a VXLAN, only the MAC address of the datalink that belong to the same VXLAN segment or VNI must be unique. This is similar to a VLAN where the VLAN ID and the MAC address must have a unique combination.