I have a question about Mastercoin and why the Mastercoin protocol layer is needed. Couldn't the features that Mastercoin wants to build be created directly on top of Bitcoin without Mastercoin? I know the Mastercoin exodus address was created to give an incentive for these features to be created in the first place, but doesn't that incentive already exist with people who own bitcoins? In other words, don't holders of bitcoins benefit from supporting projects such as Open Transactions and Colored Coins? I am interested in many of the features that will be built on top of Mastercoin, but I am wondering if people would prefer those features to be built directly on top of Bitcoin. For example, with the decentralized exchange, won't users prefer to trade bitcoins directly for a stock or currency in the Colored Coins wallet rather than exchanging bitcoins for mastercoins and then into the stock or currency? It seems that the middle Mastercoin layer adds a bit of extra volatility with the Mastercoin currency that is not needed. When it comes to people with dollars or other fiat currencies who want to trade on one of these decentralized exchanges, wouldn't they be more likely to trade from bitcoins into the new currencies and stocks rather than mastercoins? People will want to use a less volatile currency, such as bitcoin, to do their trading, and it is likely that Bitcoin will have more liquidity, and therefore, less price volatility.

Edit: After doing more reading it seems that users interacting with the Mastercoin decentralized exchange may not need to own Mastercoins. They will be able to load their bitcoins into the client and then trade them directly for other user-made currencies. Is this how it works?