C correct
VTEPs connect between Overlay and Underlay network and they are responsible for encapsulating frame into VXLAN packets to send across IP network (Underlay) then decapsulating when the packets leaves the VXLAN tunnel.
Ref: CCNP and CCIE Data Center Core DCCOR 350-601 Official Cert Guide
“Chapter 4
Virtual Extensible LAN (VXLAN) Overview
…
VXLAN Tunnel Endpoint
VXLAN uses the VXLAN tunnel endpoint (VTEP) to map tenants’ end devices to VXLAN segments and to perform VXLAN encapsulation and decapsulation.
…”
A. tunneling traffic from IPv6 to IPv4 VXLANs
Wrong answer.
B. allowing encrypted communication on the local VXLAN Ethernet segment
Wrong answer.
C. encapsulating and de-encapsulating VXLAN Ethernet frames
Correct answer.
D. tunneling traffic from IPv4 to IPv6 VXLANs
Wrong answer.
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