I'm pretty sure that ctmullins is right...if you look at the DOs, they slide. That should give the tensioning ability for the chain. Definitely an interesting design...I wonder if it works and holds the DO in place though.

I would rather have a bike with wider clearances, slacker geometry and some eyelets for fenders and rack personally. I have no aesthetic, moral or principles issue here, I just think there might be better frames for what the OP is doing. I'm all for unconventional builds and making things what you want, but I like using the right tool for it too.

I'm not sure what the spacing on that hub is, but if jr59 is right...a 10mm spread is going to tighten the clearance even further. I would NOT cold set that frame to 135mm.