I don't think autoregressive models have a fundemental difference in terms of reasoning capability in latent space vs token space. Latent space enables abstract reasoning and pattern recognition, while token space acts as both the discrete interface for communication, and as a interaction medium to extend, refine and synthesize high order reasoning over latent space.

Intuively speaking, most people think of writing as a communication tool. But actually it's also a thinking tool that helps create deeper connections over discrete thoughts which can only occupy a fixed slice of our attention at any given time. Attentional capacity the primary limitation-- for humans and LLMs. So use the token space as extended working memory. Besides, even the Coconut paper got mediocre results. I don't think this is the way.