I agree with those concerns.
The premise had been that UT1 would be used as alternative to leap smearing. I.e., I inferred that it was intended to address the same problems. I.e., that would implicitly mean that systems, e.g., the Linux kernel, would keep their system time in UT1.
UT1 could easily be propagated through NTP, just like leap smearing is. However, as you point out with the example of holdover, feeding in UT1 “at the top”, i.e., stratum 0, would be difficult, as all current stratum 0 sources keep time derived from TAI. E.g., GPS time in case of GPS, UTC in case of GLONASS, etc.
Thus, not spelled out, but implicitly assumed as backdrop for my previous post was that time at stratum 0 would still be disseminated derived from atomic time, e.g., UTC, for the reason you point out. UT1-UTC would be provided alongside it, or by other means. Then, e.g., stratum 1 would generate UT1 and pass that on within NTP, like done with leap smearing. Or UTC would be passed on, plus potentially UT1-UTC, and lower strata would need to be aware of that, and then derive UT1 locally, and feed that to their systems. I.e., “within NTP”, UTC would be used, and for syncing system time, that would be translated to UT1. A bit similar to what we have now with system time kept in UTC (on typical Linux at least, Windows and others might be different), and local time and possible DST representations being generated from UTC locally for “presentation”.
Fully agree that makes things more complicated. Unless a smarter way to leverage UT1 as replacment for leap smearing could be devised…
But I had understood this to be mostly a thought experiment for now…
EDIT: Actually, thinking about it, I think the option to pass on UTC through NTP, and then have lower strata servers each derive UT1, doesn’t make sense. Limiting the awareness of UTC vs. UT1 to stratum 0 and 1 already causes enough challenges, and smearing that logic across lower strata as well doesn’t seem to bring any benefits, just more issues. If lower stata systems have a need for UTC, e.g., because they operate in environments where UTC (or some atomic time derived scale) is used, they can do so themselves, inverting the stratum 0/1 operation.