BLUF/TLDR: Apple should make Time Machine capable of keeping local backups of data that has been offloaded from your device due to iCloud Drive’s Optimize Storage option.
Apple has Time Machine to support local backups.
Apple offers Optimize Storage with iCloud Drive for those who have limited local hard drive space.
Unfortunately, any files MacOS decides to not keep locally due to Optimize Storage will also not get backed up to Time Machine nor other backup solutions that I’m aware of thus reducing those files offloaded to iCloud in a “one copy state” and at risk of data loss that can be caused by a multitude of things including user error. Also changes made to those files on other devices will never make it to Time Machine unless you access that file on the Mac connected to Time Machine causing MacOS to download the file again.
I understand there are folks who have data caps and can not spare the possible excessive data movement which could be caused by such a system but I’d love to see Apple offer an option to get around this.
Just give us an option, along with a warning that the feature could cause excessive data usage, where Time Machine can temporarily download a file from iCloud Drive to back it up then remove the temp file. It would only need to do this once for the most part as any files you are actively changing after that point would be downloaded anyway. For files modified on other devices iCloud could use a Modified tag just like local incremental backups use so Time Machine could grab the most recent update for backup.
I dunno, I know this is full on TLDR material for a lot of folks but I’d love if I could get more people to think about this and maybe the community can start giving some pressure that Apple could eventually respond to. I’m going to submit my suggestions to Apple but one dude ain’t going to change the flow of Apples development.