Comment 38 for bug 1996909

Searching for the error on the Internet I found the following threads:

https://discuss.linuxcontainers.org/t/how-to-run-docker-inside-lxc-container/13017
https://discuss.linuxcontainers.org/t/run-docker-on-lxd-container/11575
https://discuss.linuxcontainers.org/t/docker-with-overlay-driver-in-lxd-cluster-not-working/9243

The error might be related to how lxd storage is setup and the kernel. I believe the best solution is to add the following to the unprivileged container configuration:

security.nesting=true
security.syscalls.intercept.mknod=true
security.syscalls.intercept.setxattr=true

Instead of running a privileged container (see @stgraber's comments on those threads).