Colored Coins and Counterparty can't compete with ERC20-Token on Ethereum because the Token does not comply with blockchain consensus. Bitcoin Cash needs it.

With OP_Group Bitcoin Unlimited proposed for the first time a mechanism to make Token on Ethereum compatible with Bitcoin's consensus mechanism. If Bitcoin Cash aims to compete with Ethereum on the fiel of token economy, it needs it. The reason is obvious.

Counterparty, Colored Coin and any other existing token mechanism on Bitcoin issues token "on top of Bitcoin." This means that the consens protocol does not care about what happens with the token. Nodes will not check doublespends and validity of token transactions, miners will not care about it when they include transactions in a block.

To test token transfer validity, users have to use another protocol. This makes it complicated to work with token, and even if you do, you will not have Bitcoin Cash security, but token protocol security. It also makes it very hard and crampy to bring token in SPV wallets. Ethereum's ERC20 token are a natural part of blockchain processing of smart contracts. This is why it's incredibly easy to issue token and why every wallet left and right can easily incluse them. On most wallets you can easily access any given ERC20-token in seconds, without any coding competence.

If Bitcoin Cash does not catch up with this, it will have no chance to compete with Ethereum here. Counterparty and Colored Coins did not lose against ERC20 because of Core and Blocksize and OP_Returns reduced size. They lost because they issue token outside of Bitcoin's consensus protocol.