233. VTEP 3 de-encapsulates the ARP request, creates an ARP entry for the user terminal, andsends an ARP reply to the user terminal.4. VTEP 1 forwards the ARP reply to the user terminal.5. The user terminal learns the MAC address of the gateway, and sends the Layer 3 traffic to thegateway.6. VTEP 3 removes the VXLAN encapsulation and inner Ethernet header for the traffic, andforwards the traffic to the destination node.Inter-VXLAN forwarding is the same as this process except for the last step. At the last step ofinter-VLAN forwarding, the gateway replaces the source-VXLAN encapsulation with thedestination-VXLAN encapsulation, and then forwards the traffic.Figure 10 Example of centralized VXLAN IP gateway deploymentDistributed VXLAN IP gateway deploymentAs shown in Figure 11, each site's VTEP acts as a gateway to perform Layer 3 forwarding for theVXLANs of the local site. A VTEP acts as a border gateway to the Layer 3 network for the VXLANs.The VTEPs perform Layer 3 forwarding based on ARP or ND entries.IMPORTANT:The site-connected gateways are called distributed gateways. On the distributed gateways, youmust enable local proxy ARP (for IPv4 sites) or local ND proxy (for IPv6 sites).VXLAN tunnelVTEP 1 VTEP 2Site 1 Site 2TerminalTerminalTerminalVSI/VXLAN 10VSI/VXLAN 20VSI/VXLAN 30TerminalTerminalTerminalVSI/VXLAN 10VSI/VXLAN 20VSI/VXLAN 30TransportnetworkP10.1.1.1120.1.1.1130.1.1.1110.1.1.1220.1.1.1230.1.1.12VXLAN tunnelVXLAN tunnelVTEP 3/Centralized VXLAN IP gatewayVSI/VXLAN 10VSI/VXLAN 20VSI/VXLAN 30VSI-interface1010.1.1.1/24VSI-interface2020.1.1.1/24VSI-interface3030.1.1.1/24L3 network