That's right, though deduplication feature is not the way to do it. The VM template would be a zvol, which is a block device backed by the lower levels of ZFS,

That's right, though deduplication feature is not the way to do it. The VM template would be a zvol, which is a block device backed by the lower levels of ZFS, and it would be cloned to a new zvol for each VM. Alternatively, if image files were used, the image file could be a reflinked copy. In both cases, new data would be stored only when changes accumulate. Compare this to the deduplication approach: the filesystem would need to keep tabs on the data that's already on disk, identify the case where the same data is being written and then make that a reference to the existing data instead. Very inefficient if on application level you already know that it is just a copy being made. In both of these cases, you could say that the data ends up being deduplicated. But the second approach is what the deduplication feature does. The first one is "just" copy-on-write.