It's hardware-level passthrough with zero performance or compatibility hit. The catch is that the guest needs exclusive access to the device, i.e. you need two GPUs, one for the host and any other guests and one dedicated entirely to the passthrough VM. There's a few applications like Chromium that incorrectly detect the GPU configuration and need manual overrides.

Also, it helps to use a recent AMD card and the in-tree amdgpu driver instead of the out-of-tree nvidia driver.

Overall, you trade software problems for hardware problems (UEFI firmware versions can break the setup), but if you get it working it works great.