What is the best way to create inline typography?

Hi,

I wonder that the best way to create inlined typography is. Here's a image showing what I'm trying to do.

I could do it just using the pen in Illustrator but I think it's really hard to make it look good that way.

My problem is to make the inner line smooth in the rounded corners of for example D, O, U and S.

I know that this font isn't inlined from the beginning,