In a cloud-scale or data center–scale environment,Virtual Extensible LAN (VXLAN)is used as anoverlay technologyto transportLayer 2 segments over a Layer 3 underlay network. VXLAN encapsulates Layer 2 Ethernet frames inside UDP/IP packets, allowing broadcast, unknown unicast, and multicast (BUM) traffic and tenant Layer 2 domains to be extended across a routed IP fabric.

Key points aligned with Cisco Service Provider Cloud Infrastructure design principles:

VXLAN creates aLayer 2 overlay on top of a Layer 3 underlay.

TheVXLAN Network Identifier (VNI)provides a much larger segmentation space than traditional VLANs, enabling multi-tenancy at cloud scale.

Because the underlay is pure Layer 3 (IP routed fabric), VXLAN allows you tointerconnect Layer 2 segments between leaf switches or data centers over an IP/MPLS backbonewithout relying on large Layer 2 domains in the physical network.

Why the options evaluate as follows:

Option A: extends Layer 2 segments across the underlying Layer 3 infrastructure✅This is the core benefit of VXLAN in cloud-scale designs. VXLAN encapsulates Layer 2 frames intoIP/UDP headers, allowing isolated Layer 2 segments (per VNI) to be stretched across a routed IP network. This enables:

Multi-tenant Layer 2 connectivity across a distributed cloud fabric

Mobility of virtual machines or containers while keeping same IP/MAC addressing

Use of an IP-based leaf–spine or service provider underlay for scalability and resiliency

Option B: extends Layer 3 segments across the underlying Layer 2 infrastructure❌This is the opposite of what VXLAN does. VXLAN is explicitlyL2-over-L3, not L3-over-L2. Extending pure Layer 3 segments over Layer 2 is not the VXLAN use case.

Option C: reduces spanning-tree complexity across the Layer 2 infrastructure⚠️(Partially related but not the primary or direct benefit)In modern designs, the underlay isLayer 3 routed, and VXLAN overlays provide logical Layer 2 segments. This designavoids dependence on spanning tree in the fabric, whichindirectlyreduces STP complexity. However, the fundamental, exam-relevant benefit isL2 extension over L3, so C is not the best or most accurate answer compared to A.

Option D: eliminates the need for a Layer 3 underlay in the service provider infrastructure❌VXLAN absolutelyrequiresan IP (Layer 3) underlay for transport. VXLAN tunnels are built over a routed infrastructure (leaf–spine, MPLS/IP core, etc.). It does not remove the need for Layer 3; it depends on it.