In principle, it is not recommended to use FAT32 when exFAT can be used. FAT32 cannot be installed on systems with Windows 7 or higher because the number of files in the C:\Windows\WinSxS\Manifests directory has exceeded the upper limit of the FAT32 file system. Because the maximum number of files in the same directory in FAT32 can only be 65536, if a long file name is used, the value will be even smaller. However, exFAT is different. The maximum number of files in the same directory can reach 2,796,202, so there will be no problem of the number of files exceeding the limit when used to install Windows 10.
I am a professional data recovery engineer. exFAT and FAT64 are actually the same file system, but the difference between exFAT and FAT32 is not only the ability to store a single file >4GB. exFAT introduces many modern file system features on the bottom layer. For example, exFAT introduced a cluster bitmap management mechanism to solve the problem of low performance of FAT12/16/32 on mass storage devices. In addition, FAT tables formatted by exFAT are forced to 4K alignment by default, which meets the requirements of 4KB minimum IO unit for NAND flash memory. In addition, because exFAT does not have volume logfile records, it reduces the consumption of flash memory read and write bandwidth, so its performance will generally be higher than NTFS.
Some advantages of installing and booting Windows system in exFAT partition:
Optimize volume bitmap management and page block allocation to improve the read and write speed of flash storage media
No volume log records, reducing the number of flash memory read and write operations to extend its service life
The non-authority management mechanism defaults to the highest authority, and management system files no longer report insufficient authority errors
Windows To Go cooperates with platforms such as Mac and Linux to have stronger interaction capabilities and wider compatibility
Allows to allocate larger clusters to improve IO performance
Support TFAT protection mechanism (Win8 only)
Support ECC checksum (metadata only)