Waters has actually shown a pretty nice shooting touch. 39.5% from 3 on 1.5 attempts a game. 94.1% from the line. He seems like the exact type of player you'd want on a 2-way contract i.e. situationally he has a high value because he has an elite skill.
Given our current situation at point guard, I'm not so certain he wouldn't be better than Smart as a starter. It would be worth a try early in the year to see. He's can shoot and can beat guys off the dribble, but more importantly, he provides better pace and movement. He's also somehow able to be a plus defender out there, which is pretty amazing.
He may never be able to get over the top and be a real starter or even a rotation player, but we don't have a great solution in Smart. I'd want to try out both Pritchard and Waters before giving up anyone.
Waters started several games this season and he did not look very good. I think Smart will be a good fit as the starting PG now that Kemba is gone. Would at least give him until the trade deadline to see how he does with a new role and coach. The only consistent problem that I had with Smart was his 3pt shooting. If he can limit his total shot attempts to 6-8 per game and focus on passing, I feel like he will be solid.
Waters played 20 minutes or more only 6 times last year, topping out at 25 only once. He had a couple of quality games, and a couple of shaky ones. He had 31 assists in those 6 games.
That is what should be expected of any player who doesn't get any kind of reliable minutes. You only can reliably judge a player when they get consistent minutes over at least 10 games.
As for Smart, I could live with his shooting. To me his biggest flaws are that he slows the pace down, he pounds the rock, and he doesn't make good offensive decisions under pressure.
This team needs to play faster and pass more. Smart is part of that problem.