Here is some pertinent information from a Cisco document:
Deploying VN-Link with Network Interface Virtualization
In addition to the distributed virtual switch model, which requires a tight integration between the hypervisor, its management layer, and the virtual networking components and implements switching in software within the hypervisor, Cisco has developed a hardware approach based on the concept of network interface virtualization. NIV completely removes any switching function from the hypervisor and locates it in a hardware network switch physically independent of the server. NIV still requires a component on the host, called the interface virtualizer, that can be implemented either in software within the hypervisor or in hardware within an interface virtualizer-capable adapter. The purpose of the interface virtualizer is twofold:
• For traffic going from the server to the network, the interface virtualizer identifies the source vNIC and explicitly tags each of the packets generated by that vNIC with a unique tag, also known as a virtual network tag (VNTag).
• For traffic received from the network, the interface virtualizer removes the VNTag and directs the packet to the specified vNIC.
The interface virtualizer never performs any local switching between virtual machines. The switching process is completely decoupled from the hypervisor, which brings networking of virtual machines to feature parity with networking of physical devices.
