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TLOCs serve another important function besides data plane connectivity. In OMP terms (the routing protocol used over the SD-WAN Fabric), the TLOC serves as a next-hop for route advertisements. OMP is very similar to BGP in many ways, and just as the next-hop must be resolvable for BGP to install a route, the same is true of OMP. Reference: https://carpe-dmvpn.com/2019/12/14/tlocs-cisco-sd-wan/