You need to meet the technical requirements for VM3.

Data Deduplication is a Windows Server file-and-storage feature that can only be enabled on NTFS-formatted data volumes; it cannot be enabled on the operating system (boot/system) volume, and it does not support ReFS or FAT/exFAT volumes at all. VM3 ' s volumes are C (NTFS, the operating system volume), D (NTFS, a data volume), E (ReFS), and F (exFAT). Volume C is excluded because Deduplication is never supported on the volume that hosts the operating system, even though its file system is NTFS. Volume E is excluded because Data Deduplication has no ReFS support in general-purpose deployments; ReFS uses its own separate storage-efficiency mechanisms such as block cloning, not the Deduplication feature. Volume F is excluded because exFAT is a lightweight file system with no support for Windows Server roles or features such as Deduplication, which depends on NTFS-specific metadata structures. That leaves volume D as the only NTFS data volume that is neither the boot volume nor formatted with an unsupported file system, so it is the only volume on which Data Deduplication can currently be enabled, making option C correct.