first a Source should be returned as a child of the map:

{ Source } from "react-map-gl";
    
<Map ...>
  <Source 
    id="mapbox-raster-dem"
    type="raster-dem"
    url="mapbox://mapbox.mapbox-terrain-dem-v1"
    tileSize="512"
    maxzoom="14"/>
</Map>

and now you can specify the Terrain style inside the Map component:

terrain={{
  source: "mapbox-raster-dem",
   exaggeration: 2,
}}

full code:

const MapInstance = () => {
  return (
    <Map
      ...
      terrain={{
        source: "mapbox-raster-dem",
        exaggeration: 2,
      }}
    >
      <Source
        id="mapbox-raster-dem"
        type="raster-dem"
        url="mapbox://mapbox.mapbox-terrain-dem-v1"
        tileSize="512"
        maxzoom="14"
      />
    </Map>
  );
};