monsterer, in writing the whitepaper you have seen, I considered this possibility. It's actual the most basic way of implementing a stable currency, but it's suboptimal because it creates massive volatility in the supply of the native token.
First let me summarise what I understand is being proposed here, although I have not read all the detail. To put this in terms that Bitshares would understand, when bitUSD demand rises, the block-chain would auction off freshly created bitUSD for BTS and the BTS would be burned. When bitUSD demand falls, the block-chain would auction off freshly created BTS for bitUSD and burn the bitUSD. This maintains a flexible supply allowing the price to be pegged.
Now critically this is un unfunded approach, with no defined collateral pool backing the bitUSD. There is only a commitment to inflate the BTS supply as much as necessary to meet the sales of bitUSD when they occur. All is great while bitUSD demand is rising, but if bitUSD started getting sold back, and particularly at depressed valuations of BTS, it would dilute BTS into the ground. Of course practical measures could be used to constrain this (we've actually touched on this topic before monsterer), but only at the expense of compromising liquidity and exchangeability.
In thinking through all the options for my whitepaper, you will see I came up with a number of pre-conditions to the optimal architecture. See the bottom of this post for my whitepaper... https://bitsharestalk.org/index.php/topic,15880.msg203777.html#msg203777
To reiterate, those preconditions are:Pre-conditions
The following are pre-conditions to the required architecture:
(i) The currency must be redeemable on the block-chain to eliminate counterparty risk,
(ii) The currency must be backed by a pool of native tokens to meet redemptions, to avoid inflation of native tokens for redemptions
(iii) Exchange of  native tokens for creation or destruction of currency [end edit] must be facilitated at the feed price (near instantly) to ensure maximum pegging in all markets
(iv) There needs to be a single floating variable to ensure supply and demand can equilibrate at the peg, the most recognized being interest
(v) The interest rate must be determined by market forces between buyers and sellers, to ensure markets always clear (no shortage or surplus at the feed price)
(vi) Markets at varying terms should be available, so that mismatches in term preferences between buyers and sellers can be priced along the yield curve, rather than stifling an isolated market.
The proposed approach passes (i), but fails at (ii) as I discussed above. Thus it also fails (iii)-(vi). All the pre-conditions are satisfied by my white-paper approach. [Incidentally, BitAsset 3.0 on its own satisfies (i)-(ii) and now (iii), but does not meet (iv)-(vi)].
Another issue he talks about is the price feed. He basically reiterates my view that a price feed must be exogenous if it refers to an external valuation anchor. However, he says that an endogenous price feed is possible if the goal is simply stability rather than pegging. This seems to depend however on maturity in the native token, by which time a stable alternative is irrelevant because the native token itself will be much more stable.