VMware vSphere virtual machine encryption (VM encryption) is a feature introduced in vSphere 6.5 to enable the encryption of virtual machines. VM encryption provides security to VMDK data by encrypting I/Os from a virtual machine (which has the VM encryption feature enabled) before it gets stored in the VMDK.
Concerning about the performance impact that might be? Check out the VM Encryption Performance Whitepaper by VMware to find out.
In short, according to the Executive Summary in the whitepaper, We show that while VM encryption can lead to bottlenecks in I/O throughput and latency for ultra-high-performance devices (like a high-end NVMedrive) that can support hundreds of thousands of IOPS, for most regular types of storage, like enterprise class SSD or VMware vSAN™, the impact on I/O performance is very minimal.