This is known as a “multi-channel signed distance field”, or “msdf”.
That problem has been solved by multi-channel signed distance fields https://github.com/Chlumsky/msdfgen
Of course you can implement smooth circles directly in a shader the way you describe, but note that there are Vector outline shapes that are not circles...
Check out the outlines you can do using SVG - paths composed of straight line segments as well as cubic bezier curves and various arcs. Also color gradients, stroking...
A little more info:
https://blog.mapbox.com/drawing-text-with-signed-distance-fi...
MIT-licensed open-source multi-channel glyph generation:
https://github.com/Chlumsky/msdfgen
The only remaining issue would be the kerning/layout, which is admittedly far from simple.
I wonder how they both compare. I am guessing Slug is more accurate but certainly also much more intensive, if its actually rendering outlines.