If you have a trusted source of prices and a trustable way of getting that price information into a DAC (median delegate feed) then I suppose you can get rid of the entire Bid/Ask system all together and simply have the DAC create / destroy XTS as necessary for people to convert into and out of USD.
However, if you do not have a price source (all exchanges are shut down by government) then it becomes a bit more difficult to know the "true" price upon which to execute your automatic process.
Also by having the network automatically create/destroy XTS "on demand" for conversion to/from BitUSD you are forcing the shareholders to take the full risk of being short.
That said I really like the idea for its simplicity and clarity. It would not have been possible prior to DPOS, but now is potentially viable.
Ok, my design also relies on BTC <-> BTSX conversion directly on the chain using smart oracles. So you have real valuation in BTC at all times even if feeds disappear.
As far as the feeds go the block chain ensures liquidity but still allows for trading within the spread. If feeds are shutdown that is a problem regardless of which method you choose.
The simple idea is that you will always be reimbursed in BTC the equivalent of whatever your BitUSD is worth. In other words BTSX will capture all the fluctuations, but there is also incentive to hold it, since all the trades reward the BTSX holders.
Would be even better if dividends from fees are awarded in BitUSD, BitGOLD, etc. and given to the holders of BTSX. I think for simplicity and blockchain optimization you chose to give out dividends by burning BTSX.