Any side chain must therefore be able to generate currency out of the blue and on-demand. This might be possible to do in other protocols but not bitcoin. So the symmetry is basically lost. am I missing something?
The only thing that matters is that Y amount of sidechain issued currency/protocol must be pegged to X amount of currency in the bitcoin network. And this ownership must be verifiable by crypto. At the higher level, it is basically a 2 way agreement.
The sidechain-coin could have many different features, for instance it could be a clone of Ethereum and its "currency": "ether", being able to replicate its functionalities like issuing subcurrencies or assets (out of the blue) completely decoupled from the bitcoin blockchain. But the higher level currency (the Y issued ether) is pegged to X amount of bitcoin.
I don't think you are. The idea seems to be that you don't have alternative tokens at all, really. Instead you would use an alternative blockchain using what are for most intents and purposes still bitcoin tokens. It's not really intended to be compatible with existing altcoins, but rather to supplant them.
The sidechain-coin could have many different features, for instance it could be a clone of Ethereum and its "currency": "ether", being able to replicate its functionalities like issuing subcurrencies or assets (out of the blue) completely decoupled from the bitcoin blockchain. But the higher level currency (the Y issued ether) is pegged to X amount of bitcoin.
The concept is not new and is similar to the proposed spin-offs... https://bitcointalk.org/index.php?topic=563972.0