I'd like to learn more about the specifics of how this would work. You mentioned that the problem with some types of "traditional" fish farming have environmental downside if the fish "crop" is fed smaller fishes that are harvested from wild sources. This could obviously have huge consequences on the marine ecosystem, since everything out there is food for something else. An algae diet could get around this problem, but is this actually workable? And has this actually been implemented a commercial scale?
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Yes and yes. Kampachi Farms feeds their fish a vegan diet. You might think this would constrain them to raising only herbivorous fish, but it is possible to formulate nutritionally complete fish food for a variety of species where the protein comes from spirulina or chlorella, which are famously nutritious even by themselves. More here.