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Layer 3 MPLS VPN is fundamentally different from Layer 2 VPNs primarily due to its relationship with the customer edge devices and the way it handles routing. In Layer 3 MPLS VPNs, there is a significant interaction with customer edge (CE) devices since these devices establish a routing relationship with the service provider's edge routers. This routing capability allows Layer 3 MPLS VPNs to offer IP-based services, which facilitates the connection of multiple sites and enables the exchange of routed IP packets across the service provider's backbone.

This peering with customer edge devices is crucial because it allows for the implementation of features such as routing protocols (like BGP or OSPF) across the provider's network. In contrast, Layer 2 VPNs operate at a different functional level, primarily dealing with frame relay or Ethernet frames between endpoints without involving IP routing directly. As a result, Layer 3 MPLS VPNs can provide richer services, including support for different IP subnets and more flexible addressing, which sets it apart from Layer 2 models.

The failure to require peering with customer edge devices would limit the functionality of Layer 3, as it relies on these interactions for proper routing and service delivery. Thus, the requirement for