The algorithmic part itself I think is fine. It's similar to the mechanism ETFs use to stay close to the benchmark they want to track: if the ETF ever tracks above or below its benchmark, you can arbitrage by converting the component shares to ETF shares, or by redeeming the ETF for its components.
That all depends on liquidity though. The arbitrage mechanism is only compelling and effective if you can reliably take some asset you actually want (say, USD), put it into one side of that market, do the arbitrage, and get USD back out from the other side. If that route becomes risky then you're mixing the arbitrage mechanism up with significant asset pricing and/or counterparty risk.
That all depends on liquidity though. The arbitrage mechanism is only compelling and effective if you can reliably take some asset you actually want (say, USD), put it into one side of that market, do the arbitrage, and get USD back out from the other side. If that route becomes risky then you're mixing the arbitrage mechanism up with significant asset pricing and/or counterparty risk.