> Am I correct? In that I should have used UFS in the guest rather than
> zfs? Or was it the encryption?
As Alan already wrote - you can use ZFS inside of the guest but I would
never choose ZFS in zvol backed guest. I prefere UFS. It is faster and
does not need so much memory as ZFS does. My VirtualBox and Bhyve guests
are small. Sometimes <1GB of RAM. Sometimes 2GB of RAM and that is very
small for ZFS.
May be you can try to limit ZFS ARC size in /etc/sysctl.conf or in
Choose about 1/4 of your guest's RAM size and test it again.