diff --git a/the-matrix/index.html b/the-matrix/index.html
index eb03c35..b7a9951 100644
--- a/the-matrix/index.html
+++ b/the-matrix/index.html
@@ -495,6 +495,12 @@
       50% { opacity: 0.2; }
     }
 
+    /* ── Nostr identity prompt animation ─────────────────────────────── */
+    @keyframes fadeInUp {
+      from { opacity: 0; transform: translateY(12px); }
+      to   { opacity: 1; transform: translateY(0); }
+    }
+
     /* ── Timmy identity card ──────────────────────────────────────────── */
     #timmy-id-card {
       position: fixed; bottom: 80px; right: 16px;
@@ -520,6 +526,7 @@
     <h1>THE WORKSHOP</h1>
     <div id="fps">FPS: --</div>
     <div id="active-jobs">JOBS: 0</div>
+    <div id="edge-status" title="Local AI model status">◌ AI: loading</div>
     <div id="session-hud">
       <span id="session-hud-balance">Balance: -- sats</span>
       <a href="#" id="session-hud-topup">⚡ Top Up</a>
diff --git a/the-matrix/js/edge-worker-client.js b/the-matrix/js/edge-worker-client.js
index eaa680f..0e5a01f 100644
--- a/the-matrix/js/edge-worker-client.js
+++ b/the-matrix/js/edge-worker-client.js
@@ -25,6 +25,7 @@
 let _worker = null;
 let _ready  = false;
 let _readyCb = null;
+let _errorCb = null;
 const _pending = new Map(); // id → { resolve, reject }
 let _nextId = 1;
 
@@ -48,6 +49,7 @@ function _init() {
         // Resolve all pending with fallback values
         for (const [, { resolve }] of _pending) resolve(_fallback(null));
         _pending.clear();
+        if (_errorCb) { _errorCb(data.message); _errorCb = null; }
         return;
       }
 
@@ -103,6 +105,10 @@ export function onReady(fn) {
   _readyCb = fn;
 }
 
+export function onError(fn) {
+  _errorCb = fn;
+}
+
 export function isReady() { return _ready; }
 
 /**
diff --git a/the-matrix/js/main.js b/the-matrix/js/main.js
index 3c25033..fc0ae51 100644
--- a/the-matrix/js/main.js
+++ b/the-matrix/js/main.js
@@ -12,8 +12,8 @@ import { initWebSocket, getConnectionState, getJobCount } from './websocket.js';
 import { initPaymentPanel } from './payment.js';
 import { initSessionPanel } from './session.js';
 import { initNostrIdentity } from './nostr-identity.js';
-import { warmup as warmupEdgeWorker, onReady as onEdgeWorkerReady } from './edge-worker-client.js';
-import { setEdgeWorkerReady } from './ui.js';
+import { warmup as warmupEdgeWorker, onReady as onEdgeWorkerReady, onError as onEdgeWorkerError } from './edge-worker-client.js';
+import { setEdgeWorkerReady, setEdgeWorkerError } from './ui.js';
 import { initTimmyId } from './timmy-id.js';
 import { AGENT_DEFS } from './agent-defs.js';
 import { initNavigation, updateNavigation, disposeNavigation } from './navigation.js';
@@ -49,6 +49,7 @@ function buildWorld(firstInit, stateSnapshot) {
     void initNostrIdentity('/api');
     warmupEdgeWorker();
     onEdgeWorkerReady(() => setEdgeWorkerReady());
+    onEdgeWorkerError(() => setEdgeWorkerError());
     void initTimmyId();
   }
 
diff --git a/the-matrix/js/ui.js b/the-matrix/js/ui.js
index 5e47fbb..a477fd0 100644
--- a/the-matrix/js/ui.js
+++ b/the-matrix/js/ui.js
@@ -32,12 +32,34 @@ export function setInputBarSessionMode(active, placeholder) {
 }
 
 // ── Model-ready indicator ─────────────────────────────────────────────────────
-// A small badge on the input bar showing when local AI is warm and ready.
-// Hidden until the first `ready` event from the edge worker.
+// 1. A small status line in the HUD: "◌ AI: loading" → "● AI: ready" / "✕ AI: error"
+// 2. A badge on the input bar once the model is warm (subtle "⚡ local AI" cue).
+// Both are updated by setEdgeWorkerReady() / setEdgeWorkerError().
 
 let $readyBadge = null;
+let _identityReady = false;
+
+function _updateEdgeHud(state) {
+  const $s = document.getElementById('edge-status');
+  if (!$s) return;
+  if (state === 'ready') {
+    $s.textContent = '● AI: ready';
+    $s.style.color  = '#44cc88';
+    $s.title = 'Local AI active — trivial queries answered without Lightning payment';
+  } else if (state === 'error') {
+    $s.textContent = '✕ AI: error';
+    $s.style.color  = '#cc4444';
+    $s.title = 'Local AI unavailable — all requests routed to server';
+  } else {
+    $s.textContent = '◌ AI: loading';
+    $s.style.color  = '';
+    $s.title = 'Local AI model loading…';
+  }
+}
 
 export function setEdgeWorkerReady() {
+  _updateEdgeHud('ready');
+
   if (!$readyBadge) {
     $readyBadge = document.createElement('span');
     $readyBadge.id = 'edge-ready-badge';
@@ -58,6 +80,23 @@ export function setEdgeWorkerReady() {
   $readyBadge.style.display = '';
 }
 
+export function setEdgeWorkerError() {
+  _updateEdgeHud('error');
+}
+
+// Listen for Nostr identity resolved — update HUD tooltip to reflect combined state
+window.addEventListener('nostr:identity-ready', (e) => {
+  _identityReady = true;
+  const pubkey = e.detail?.pubkey;
+  const $s = document.getElementById('edge-status');
+  if ($s && $s.textContent.startsWith('●')) {
+    $s.title = `Local AI active · Nostr identity: ${pubkey ? pubkey.slice(0, 8) + '…' : 'connected'}`;
+  }
+  if ($readyBadge) {
+    $readyBadge.title = `Local AI + Nostr identity active${pubkey ? ' (' + pubkey.slice(0, 8) + '…)' : ''}`;
+  }
+});
+
 // ── Cost preview badge ────────────────────────────────────────────────────────
 // Shown beneath the input bar: "~N sats" / "FREE" / "answered locally".
 // Fetched from GET /api/estimate once the user stops typing (300 ms debounce).
diff --git a/the-matrix/package.json b/the-matrix/package.json
index 40b8266..c8d14cb 100644
--- a/the-matrix/package.json
+++ b/the-matrix/package.json
@@ -9,6 +9,7 @@
     "preview": "vite preview"
   },
   "dependencies": {
+    "@noble/hashes": "^1.7.2",
     "@xenova/transformers": "^2.17.2",
     "nostr-tools": "^2.23.3",
     "three": "0.171.0"