A Closer Look at Overlay and Underlay Network

Posted on Jun 16, 2023 by

As technology continues to evolve, businesses are constantly seeking ways to optimize their network infrastructure. One of the most effective ways to do this is through network virtualization. Network virtualization is the process of creating a virtual version of a network, allowing administrators to manage and optimize network resources more effectively. There are two key components of network virtualization: overlay and underlay networks. In this article, we will explore the differences between overlay and underlay networks, and how to determine which network model is best suited for your data center.

What is an Underlay Network ?

An underlay network is the physical infrastructure that forms the foundation of the virtual network. It consists of switches, routers, and other networking hardware that transport data packets between physical devices. The main function of the underlay network is to forward data packets as quickly and efficiently as possible, making it optimized for low latency and high performance. Traditional routing protocols like OSPF and BGP are used to determine the shortest path between devices, which further enhances performance. The underlay network provides a reliable and scalable foundation for the virtual overlay network, ensuring that data packets are delivered promptly and efficiently.


What is an Overlay Network ?

An overlay network is a virtual network created on top of the underlay network. It is designed to be flexible and scalable, allowing administrators to create and manage virtual networks as needed. The overlay network is created by encapsulating data packets with additional headers that identify the virtual network. This allows administrators to configure virtual networks that span multiple physical devices, even creating virtual networks that are independent of the physical network topology. The flexibility and scalability of the overlay network make it a powerful tool for managing complex data center environments. In particular, the overlay network can be used to isolate traffic, create customized network topologies, and provide secure connectivity between different departments.


Differences between Underlay Network and Overlay Network

Here are the differences between underlay network and overlay network from different perspectives:

  • Architecture and Deployment: Underlay Network is the physical network infrastructure that provides the foundation for overlay network. Underlay network is responsible for forwarding data packets and are optimized for high performance and low latency. In contrast, an overlay network is a virtual network that is built on top of the underlay network. Overlay Network is designed to provide flexibility and scalability, allowing administrators to create and manage virtual networks as needed.

  • Communication and Routing: Underlay Network uses traditional routing protocols like OSPF and BGP to determine the shortest path between devices and forward data packets. Overlay Network uses encapsulation to create virtual tunnels that carry traffic between virtual network endpoints. The encapsulation of data packets in Overlay Network can add overhead and affect performance. Overlay Network also uses its own routing protocols, such as Virtual Extensible LAN (VXLAN) or Generic Routing Encapsulation (GRE), to route traffic between virtual network endpoints.

  • Function and Application: Underlay Network is designed to provide a reliable and scalable physical infrastructure for delivering data packets. It is optimized for high performance and low latency, making it suitable for applications that require high-speed data transfer. Overlay Network, on the other hand, is designed to provide flexibility and scalability. It is ideal for applications that require customized network topologies, secure connectivity between different departments, or the isolation of traffic for specific applications.

Underlay Network
Overlay Network
Data transmission
Consisted of network devices such as routers and switches.
Consisted of virtual links between nodes.
Packet encapsulation and overhead
Packet encapsulation is performed at Layer 2 and Layer 3.
Data packets need to be encapsulated based on the source and destination.
Packet control
Deployment time
Configuration takes a long time.
Virtual network topology deployment optimization.
Multi-path forwarding
Low scalability and high network complexity.
Multi-path forwarding on virtual networks is supported.
Poor scalability.
High scalability.
Ethernet switching, VLAN, and routing protocols (OSPF, IS-IS, and BGP).
Multi-tenant management
NAT- or VRF-based isolation is required.
Overlapping IP addresses of multiple tenants can be managed.

Use Cases of Overlay and Underlay Network

Overlay networks are widely used in SD-WAN and data center solutions. Depending on the underlying network structure, the overlay network topology is also different.

Overlay and Underlay Networks in Data Centers

Modern data centers usually use both overlay and underlay network. The network construction is mainly based on the spine-leaf architecture, using hardware devices to build the underlay network, and using VXLAN protocol technology to realize the interconnection of the overlay network. Its working principle is that spine nodes provide high-speed IP forwarding and connect to leaf nodes. Leaf nodes connect various network devices in the underlying network to the VXLAN network.

Based on the construction of a modern data center network, FS has launched a cloud data center VxLAN network solution, which is an IP Fabric network (also known as an Underlay network). At the same time, the solution uses VxLAN, BGP EVPN and other protocol technologies to build an Overlay network, which can support different tenants and services, physically share network resources, and fully improve network utilization and scalability.


Overlay and Underlay Networks in SD-WAN

The SD-WAN underlay network is based on the wide area network and uses hybrid links to realize the interconnection among the headquarters, branch sites, and cloud sites. It also adopts the logical topology of the overlay network, which can meet the interconnection and intercommunication requirements in different scenarios. Typically, SD-WAN networks consist of customer premises equipment (CPE), which are categorized as edge devices and gateways. Therefore, the SD-WAN network constructed by overlay and underlay network can be constructed according to the scale of the enterprise network, the number of hub sites, and the communication requirements between sites.

As the most widely used underlay network architecture solution in data centers, the data center fabric network has the advantages of reliability, efficiency, scalability, and performance. FS data center switches will help you build a fabric network, completely solving the bottleneck problem of data center network scale and expansion.



Network virtualization is a powerful tool for optimizing network infrastructure. By leveraging the benefits of both underlay and overlay networks, administrators can design a network infrastructure that meets the specific needs of their data center and optimizes performance. In addition, by understanding the differences between these two network models, businesses can create a network infrastructure that optimizes performance, improves management, and delivers the data they need to make informed decisions.

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