Is colored coins not introducing an additional layer of trust?
That depends on how you define "another layer of trust".
Colored coins are inherently used for tracking things outside the blockchain - that by definition means representing obligations a.k.a counterparty risk. Any technique that tracks obligations outside the blockchain will be tracking counterparty risk.
But none of that has nothing to do with the underlying technology used to create the token. Colored coins as tokens are no different from other bitcoins. A colored coin token doesn't all of a sudden become less trustworthy than a non-colored Bitcoin.
I define "another layer of trust" as trusting anything else but the Bitcoin network.
In that regard colored coins are less decentralized than sidechains.
There's nothing "centralized" about the colored-coin protocol, and any additional "layer of trust" that exists for the colored-coin asset would exist for the same asset stored on a sidechain. For example, if the asset represents 1 oz of gold stored in my personal vault, then you're trusting
me regardless of whether I issue the gold receipt as a colored coin or as a sidechain token.
One supposed "weakness" of
colored coins (I use the quotes because I personally see it as a strength), is that the bitcoin protocol doesn't verify the "amount" of colored coins transferred. I can inspect any bitcoin output, look at its "value" field," and, provided that that TX has been mined into a block, I know that the output really contains the stated number of bitcoins. With colored coins, this property does not exist; instead I must follow the chain of colored transactions back to the original issuance of the colored asset to determine if the (e.g.) 1,000,000 stock certificates I'm about to buy is actually valid. This means that SPV nodes cannot verify transactions and that the whole transaction chain cannot be pruned.
And so transactions are verified through a process external to the Bitcoin system, right? Hence my statement that there is an additional layer of trust.