Under this proposed system what would happen in cases of high demand for bts, and cases of low demand for bts. I think a couple of thought experiments are in order.
First of all high demand for bts. Since no one can buy bts directly, they will have to buy bitassets. As there are more people wanting to buy than to sell the price of these bitassets will rise. If I really want into bts, but no one is offering a bitusd for $1 of fiat then I might pay $1.10 at some price there will be a seller. Once I purchase my bitusd I will transfer it to my wallet, and purchase bts with it. Once again we will assume that there are more people wanting to purchase bts with bitsud internally. My purchase will push the price of bts vs bitusd up. Thus a rising of bts price should produce shortages of bitusd for sale on external exchanges, and gluts of bitusd for sale internally.
How would it work under low demand for bts. Once again no one can sell their bts directly. Internally we can assume that there will be more bts for sale and less bitusd for sale. The price of bts in relation to bitUSD will decline, and the collateral underlying all bitusd will go down in value. Once I have my bitusd I will transfer it to an external exchange and attempt to trade it for fiat. We can once again assume that there will be more bitusd for sale on the external exchange and less fiat to purchase it. This will naturally depress the price of bitUSD in relation to fiat. This will result in a shortage of bitusd internally and a glut of bitusd externally. If the price of bts internally falls far enough then shorters will become under collateralized. They will either add to their collateral, attempt to purchase bitusd to close their short, or get margin called. If they attempt to purchase bitusd internally to close their position or are margin called this will further add to the internal shortage of bitusd and further reduce the price of bts in relation. If the price falls far enough then there will be massive buy orders in the internal bitusd market, but the rational decision for most users will not be to sell their bitusd internally for the depreciating bts. It will be to sell their bitusd externally for fiat. If conditions get bad enough then many users will be willing to sell their bitusd externally for fiat at a discount. This will erode confidence in the system, and further the decline.
This may be a worst case scenario, but I think it is likely to happen at some point. We have already seen the price of bts decline by 50% in a day or two. the current incarnation survived to lick its wounds. I am not sure that this new version would. In short I would say that my argument is that attempting to make entry and exit entirely through market pegged assets will hinder the peg, and increase the fragility of the entire system.
I hope this wall of text wasn't too hard to read. If you disagree with any of my conclusions please let me know.