Heinz has recently uploaded a video showcasing version 3 of his design, which looks like this:

The main improvements is that it now has a third coating colour and that the material now comes around in 4 positions instead of 2 in an effort for even better coating. However, a notable snippet is this:

In the months I've been staring at my CR600S instead of fixing it and testing the coaxial hotend, I've been trying to hypothesise as to why this general hotend design could be a promising solution to colour mixing. 

1] Mixing across a curved line instead of an infinitessimally small point

Part of the reason why I wanted to look into a machined hotend was to ensure the geometry of what I'll call the "cutting edge". 

This image shows what I predict is happening at the point of this cutting edge. Similar to how a pencil sharpener cuts off a thin strip of wood, this edge would cut off any coating material where the pressure exceeds that of the main colum, slightly pushing it past the edge.

To coat a cylinder, the above diagram would be revolved by 360 degrees around the leftmost edge of the Main Column. Thus, the goal is to obtain a uniform pressure of the coating material around this 360 degrees. 

2] The internal groove reduces the pressure difference

Here is another diagram to illustrate what I mean, whereby the cutting edge is shown by a gold ring:

I haven't done any fluid simulations on the bottom two, so it was just a guess as to what the cross sections would look like. 

Back to the image I highlighted, it seems that, as the acrylic paint is less viscous than the thermoplastic that Heinz used in his first version, the pressure differences are more apparent, looking like this:

An idea I had after seeing the video was the below design from this video:

I feel that something like this could reduce the pressure differences caused by material emerging from the inlets. 

Ideally, only one or two inlets (as shown above)  would be needed, but I can imagine that 3 would be the ideal number

3] The mixing is buffered, allowing for faster changes without needing a small volume

This is similar in principle to how the Pallet 3 splices material before it goes into the hotend, I believe this hotend does something similar within the hotend:

As you might already be able to see, this ties in with my next hypothesis point:

4] The diffuse distance is short

As it has been seen from typical N-in 1-out hotends, one angle of the finished print is predominantly one colour and another angle is predominantly a different colour. Heinz has also looked into using this phenomenon for multi-colour prints with a rotating nozzle.

The angle where the colours blend the best is actually the middle of these two angles. This is also where the two materials contact. What this hotend does is take this thin strip where the different materials meet and revolves it around the outer surface. The colour of a material is typically only seen from light reflected from the surface of it, and the depth increases the more transparent the material is, so this is ideal.