One limitation that may or may not matter for your particular use case: I don’t believe that Xephyr has a mechanism to do pass-through 3d acceleration. So if you’re gonna have everything go through Xephyr, one constraint is that any window that you’re sticking in a dwm is just gonna have access to a plain-Jane framebuffer.
If you’re only managing terminal windows – you mention tmux as an alternative, so that may be what you’re going for – then that may not be a concern, though there are some accelerated virtual terminal software packages.
EDIT: I have not done this myself, but it sounds like it’s possible to run nested compositors inside Wayland.
I don’t know if that can be used in the same way, but running dwl – like the X11 dwm window manager, but a Wayland compositor – inside a host Wayland session might work, if you’re using Wayland rather than X11 as the “host” environment. I’d guess that that wouldn’t have the same limitation.