Achieving long-term price stability remains an elusive goal, with volatility posing a constant challenge. However, a novel project called Kelp offers a compelling solution by blending blockchain technology, on-chain data, and monetary theory – a fusion that could potentially pave the way for a more stable future for digital assets.

During a recent Ask Me Anything session hosted by Cointelegraph, Edward Bishop, CEO and co-founder of Kelp, delved into the unique monetary policy-based approach underpinning the project. "We're neither a traditional fiat-backed stablecoin nor an algorithmic coin, but rather a flatcoin," Bishop explained, describing the essence of Kelp. "It's a hybrid of the two that adjusts its supply to inflation in the real economy and maintains its purchasing power over time. We use a monetary theory called the quantity theory of money. It is codified in our protocol, which monitors economic activity and predicts the ideal circulating supply to maintain price stability."

At the heart of the Kelp ecosystem lies the Kelp Protocol, a sophisticated system that leverages various economic indicators to understand market conditions. If Kelp experiences rapid price increases, for instance, the protocol can adjust the supply to reduce volatility, ensuring a more stable trajectory.

Currently, Kelp is in a seed phase, which Bishop acknowledges as "very experimental." During this phase, the project has two primary goals: to reach parity with the U.S. dollar and to ensure a minimum amount of coins are in circulation. Once these objectives are achieved, the price is expected to find equilibrium and fluctuate naturally, with the potential for the price range to adjust based on market demand and expand as the demand for Kelp increases.

To accomplish these goals, Kelp employs several mechanisms, including staking, which incentivizes users to hold KELP tokens instead of trading them, effectively reducing the circulating supply. Additionally, Kelp utilizes a variable taker fee tied to the liquidity pool, increasing when the price goes down.

"Part of the initial phase is getting Kelp Protocol to make accurate predictions, so we do a lot of simulations to figure out what the expected effect is," Bishop elaborated. "There are algorithms that determine interest rates and token release strategy, which is our guiding protocol for the seed phase. For people who want to sell, we have Liquidity Guard. If we take these three emission sources and then use the difference between what the Kelp Protocol tells us and what our supply should be, and use it to modify different variables in our ecosystem, we can achieve our short-term goals."

The Liquidity Guard, a smart contract, allows users in challenging situations to sell their Kelp holdings through the contract at an optimal time, bypassing the variable taker fee. In return, Kelp manages the sale responsibly to minimize market impact, prioritizing user needs through different fee tiers based on urgency.

Compared to traditional central banks, Bishop highlighted Kelp's ability to make quicker adjustments due to its reliance on on-chain data, enabling faster and more accurate monitoring of economic activity. However, he acknowledged the need for a delicate balance, as overreaction can be detrimental. In the event of extreme market volatility, Kelp can utilize collateralized assets as a backstop, similar to how central banks conduct open market operations, allowing Kelp to perform buybacks to stabilize the price during a crash.

Kelp's ambitions extend beyond price stability; the project also aims to build a large user base, targeting 1-2 million users for the official launch. To achieve this, Kelp is allocating 25 billion tokens through the Kelp Reservation Program, which can be earned through referrals or by completing gamified tasks, all accessible through the Kelp app, which also serves as a self-custodial Web3 wallet.

Furthermore, Kelp is introducing an algorithmic trading engine called K.A.T.E., which will analyze users' risk profiles and investment goals, and leverage hedge fund algorithms to create personalized investment portfolios, suggesting assets (crypto, stocks, or both) to buy and hold.

Kelp is currently in its third round of pre-sales, and according to Bishop, the project avoids VC funding, prioritizing funds raised through the pre-sale and user base to ensure wider accessibility and align with their "money for all" philosophy.

"We are trying to reach a certain liquidity threshold because we want to do this in a very responsible way and make sure that we have a substantial liquidity pool," Bishop explained. "It's essential for a number of functionalities, including facilitating K.A.T.E. operations and strengthening Kelp's overall collateralization. When we get to a certain liquidity threshold, we'll move into a launchpad for the IEO scenario."

Emphasizing Kelp's approach, Bishop stated, "Our goal is not to control the market, but to make it behave a certain way. Kelp is definitely very different from, say, Luna and Terra. We don't try to control supply or have a two-token system, we avoid controlling the market with brute force. We are just pulling different levers - interest rates, variable fees, supply increases that are allocated to different programs. Ultimately, we want to become a reliable unit of account, something people use for everyday transactions."

As the quest for price stability in the cryptocurrency realm continues, projects like Kelp offer a unique perspective and innovative approach. By leveraging blockchain technology, on-chain data, and monetary theory, Kelp aims to provide a path towards a more stable future for digital assets, where volatility is mitigated and widespread adoption becomes a tangible reality.