diff --git a/rust/vm-package-server/src/server.rs b/rust/vm-package-server/src/server.rs
index 0083f007..608f4b0f 100644
--- a/rust/vm-package-server/src/server.rs
+++ b/rust/vm-package-server/src/server.rs
@@ -270,7 +270,7 @@ async fn list_packages_handler(State(state): State<Arc<AppState>>) -> impl IntoR
         },
         Err(e) => {
             error!("Task join error: {}", e);
-            let error_response = format!(r#"{{"error": "Internal Server Error"}}"#);
+            let error_response = r#"{"error": "Internal Server Error"}"#.to_string();
             let mut headers = HeaderMap::new();
             headers.insert(
                 header::CONTENT_TYPE,
diff --git a/rust/vm-package-server/tests/performance_test.rs b/rust/vm-package-server/tests/performance_test.rs
new file mode 100644
index 00000000..3cfc3a82
--- /dev/null
+++ b/rust/vm-package-server/tests/performance_test.rs
@@ -0,0 +1,108 @@
+use std::time::{Duration, Instant};
+use tokio::net::TcpListener;
+use vm_package_server::run_server_with_shutdown;
+use reqwest::Client;
+
+#[tokio::test(flavor = "multi_thread", worker_threads = 1)]
+#[ignore]
+async fn test_blocking_io_performance() {
+    // 1. Setup
+    let temp_dir = tempfile::tempdir().unwrap();
+    let data_dir = temp_dir.path().to_path_buf();
+
+    // Create MANY files to make directory walking slow
+    // 50,000 files.
+    let cargo_index = data_dir.join("cargo/index");
+    std::fs::create_dir_all(&cargo_index).unwrap();
+    println!("Generating 50,000 test files...");
+
+    // Create directories first
+    for i in 0..100 {
+        std::fs::create_dir_all(cargo_index.join(format!("{}", i))).unwrap();
+    }
+
+    for i in 0..50000 {
+        let dir = cargo_index.join(format!("{}", i % 100));
+        std::fs::write(dir.join(format!("pkg{}", i)), "{}").unwrap();
+    }
+    println!("Files generated.");
+
+    // Find free port
+    let listener = TcpListener::bind("127.0.0.1:0").await.unwrap();
+    let port = listener.local_addr().unwrap().port();
+    drop(listener); // release port
+
+    // Start server
+    let (tx, rx) = tokio::sync::oneshot::channel();
+    let data_dir_clone = data_dir.clone();
+
+    println!("Starting server on port {}...", port);
+    let server_handle = tokio::spawn(async move {
+        run_server_with_shutdown("127.0.0.1".to_string(), port, data_dir_clone, Some(rx)).await
+    });
+
+    // Wait for server to start
+    let client = Client::new();
+    let base_url = format!("http://127.0.0.1:{}", port);
+
+    let mut retries = 0;
+    loop {
+        if client.get(format!("{}/status", base_url)).send().await.is_ok() {
+            break;
+        }
+        if retries > 50 {
+            panic!("Server failed to start");
+        }
+        tokio::time::sleep(Duration::from_millis(100)).await;
+        retries += 1;
+    }
+    println!("Server started.");
+
+    // 2. Trigger blocking operation
+    let url_packages = format!("{}/api/packages", base_url);
+
+    let client_slow = client.clone();
+    let task_slow = tokio::spawn(async move {
+        let start = Instant::now();
+        let _ = client_slow.get(&url_packages).send().await;
+        start.elapsed()
+    });
+
+    // 3. Measure fast operation from a separate thread
+    // We use spawn_blocking to simulate an external client or a client on a different thread
+    // that is NOT blocked by the single-threaded runtime.
+    println!("Sending health check from blocking thread...");
+    let health_url = format!("{}/health", base_url);
+
+    let handle = tokio::task::spawn_blocking(move || {
+        // Sleep to ensure slow request started and blocked the runtime
+        std::thread::sleep(Duration::from_millis(100));
+
+        let client = reqwest::blocking::Client::new();
+        let start = Instant::now();
+        // This request will hang if the server thread is blocked
+        let resp = client.get(health_url).send().expect("Failed to send health check");
+        let duration = start.elapsed();
+        (resp.status(), duration)
+    });
+
+    let (status, duration) = handle.await.unwrap();
+
+    assert!(status.is_success());
+
+    // 4. Cleanup
+    tx.send(()).unwrap();
+
+    // 5. Assertions
+    println!("Health check took: {:?}", duration);
+    let slow_duration = task_slow.await.unwrap();
+    println!("List packages took: {:?}", slow_duration);
+
+    if slow_duration < Duration::from_millis(100) {
+        println!("Warning: Listing packages was too fast ({:?}) to measure blocking effectively.", slow_duration);
+    }
+
+    assert!(duration < Duration::from_millis(500),
+            "Health check took too long: {:?}. Blocked by list_packages ({:?}).",
+            duration, slow_duration);
+}