In short: Amazon now doesn't want mobi files, they want epub files. So if you use Vellum, you need to go into your settings and change the output (for Amazon) to "epub for Kindle." If you don't see that setting, you need to update your Vellum.
There's not much consistency on Amazon's side, so far. Some people claim they are uploading mobi files just fine. Others are reporting they are encountering difficulties.
But, Amazon now says "We recommend submitting EPUB files for publishing reflowable content. MOBI is not recommended for reflowable content. Kindle Previewer is the best way to validate your EPUB content before publishing. We no longer recommend sideloading eBooks to devices for testing. Sideloading does not provide an accurate preview of Enhanced Typesetting features."
https://kdp.amazon.com/en_US/help/topic/G79CTKR8BX79E96LIf you open a mobi file in Kindle Previewer, you'll probably see this warning.

But to be clear, Amazon still
supports the mobi format. They just don't recommend it: "We support books in MOBI and EPUB format that meet the specifications outlined in the Kindle Publishing Guidelines.
If your MOBI file contains reflowable content (i.e. text-heavy books), we recommend you upload an EPUB file instead. Before uploading, we recommend validating the file with Kindle Previewer." [bolding in original]
https://kdp.amazon.com/en_US/help/topic/G200634390The Vellum folks say you should
not upload a generic epub file. Your links in the ebook will be wrong, and the Look Inside won't look right. You should upload the Vellum-outputted "epub for Kindle" file.
Vellum explains more in a recent blog post.
https://blog.vellum.pub/2020/09/amazon-would-prefer-an-epub-fileIf you distribute ARCs via BookFunnel, give BookFunnel the "epub for Kindle" file and BookFunnel will convert it to the proper mobi for Kindle readers.
* Edit: expanded post title for clarity.