In my case with Adobe support, we found that following Adobe's documentation for imageDelegate too closely was causing our problem.Documentation provides this example, using the image core component from libs:imageDelegate="core/wcm/components/image/v3/image" Instead you want to use a proxied image ...

Go to a page you created with that template and "view as published"Inspect the source code and look for the <img src> on your teaser... is it a Dynamic Media url?https://<some-dm-subdomain>.scene7.com/is/image/<company>/my-cool-image?ts=1739815780312&amp;dpr=off 

For anyone else dealing with this issue, Adobe support has confirmed it is a bug and engineering is working on a solution.

I'm actually working on this issue right now as well. In order to enable dynamic media in the Image v3 component, you have to do it through a component policy. When the teaser v2 uses imageDelegate to pass off handling of the asset to the Image v3 component, AEM does not give you the ability to turn...

Manvi, the original question specifically asked about configuring the RTE for content fragments -- I'm not convinced that your solution addresses this, especially since the new CF editor is an Adobe service. I don't see anyway that that can be configured by a customer.