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This plug is designed for 2 purposes.
1) A soft, protective cover for the hard tail flange part for rider comfort during duck dives as some riders had complained that they hurt their knee.
2) To help prevent sand and silt build-up around the stringer thread and o-ring seal that can cause “locking”. Technically it doesn’t create a 100% waterproof seal although keeps out excessive water force & make it less likely for water to penetrate ISS O Ring seal.