Some embodiments of the invention provide a method of tunneling a data packet by encapsulating the data packet with a protocol header and specifying information in the fields of the header in a manner that a network switch can offload processing tasks to its network interface controller. The switch on a transmit side sends the processed data packet through the tunnel to another switch on a receive side. The two sides represent the two ends of the tunnel established between the two switches. Each of the transmit and received side switches is controlled by a switch controller, which in some embodiments is implemented as software. The switch controllers and network interface controllers together process the data packet which is being transferred through the tunnel between the switches.