Instead of having dm-crypt over a file-backed loopback device, use directory encryption.
We would avoid the over provisioning issue and simplify the whole stack
[currently https://docs.google.com/drawings/d/1oAa_N5VFHrXmzo0hTBGogvdbQqYQ5dlfgJfoIJW5GEM/edit]

to 
https://docs.google.com/a/google.com/drawings/d/1GkbaPfvyP5ccZq43CMlrIwnT05e4PhiUwmfNtWZIOdg/edit?usp=sharing

As we did for home ext4 crypto, the same key used by dm-crypt can be reused for these directory.

Migration - if any - would happen at boot time.

[Sonny's idea]