DFSR and Deduplication

Hello all,

I am currently pre-seeding for a DFSR replication between a file server and a backup machine. The only problem is the backup machine is limited in the space it can provide. My goal is to utilize as little space on the backup server as possible. Here's my thinking on how to solve this:

Source Machine(File server): Windows server 2008 R2 8TB storage (~2TB in use)

Target (Backup machine): Windows server 2012 3.6TB Storage (~1TB in use)

1. Pre-seed the files

2. Start deduplication on the target server only

3. Start DFSR

I read a few articles with people stating that the files are "re-hydrated." Does this mean that DFS will keep recreating deduplicated files?

Will this setup work at all? If not, are there any better free ways to solve this issue?

Thanks!!!