diff --git a/src/modules/chat/services/chat-service.ts b/src/modules/chat/services/chat-service.ts
index 37cb14c..767636b 100644
--- a/src/modules/chat/services/chat-service.ts
+++ b/src/modules/chat/services/chat-service.ts
@@ -702,7 +702,8 @@ export class ChatService extends BaseService {
     }
   }
   /**
-   * Process an incoming message event
+   * Process a message event (incoming or outgoing)
+   * Note: This is called for both directions from loadRecentMessagesForPeer
    */
   private async processIncomingMessage(event: any): Promise<void> {
     try {
@@ -715,10 +716,29 @@ export class ChatService extends BaseService {
         console.warn('Cannot process message: user not authenticated')
         return
       }
-      // Get sender pubkey from event
-      const senderPubkey = event.pubkey
-      // Decrypt the message content
-      const decryptedContent = await nip04.decrypt(userPrivkey, senderPubkey, event.content)
+
+      // Determine if this is an outgoing message (sent by us)
+      const isOutgoing = event.pubkey === userPubkey
+
+      // For NIP-04 decryption, we need the OTHER party's pubkey
+      // - For incoming messages: sender is the other party (event.pubkey)
+      // - For outgoing messages: recipient is the other party (from p-tag)
+      let otherPartyPubkey: string
+      if (isOutgoing) {
+        // Outgoing: get recipient from p-tag
+        const pTag = event.tags.find((tag: string[]) => tag[0] === 'p')
+        if (!pTag || !pTag[1]) {
+          console.warn('Cannot process outgoing message: no recipient p-tag')
+          return
+        }
+        otherPartyPubkey = pTag[1]
+      } else {
+        // Incoming: sender is the other party
+        otherPartyPubkey = event.pubkey
+      }
+
+      // Decrypt the message content using the other party's pubkey
+      const decryptedContent = await nip04.decrypt(userPrivkey, otherPartyPubkey, event.content)
       // Check if this is a market-related message
       let isMarketMessage = false
       try {
@@ -764,13 +784,13 @@ export class ChatService extends BaseService {
           id: event.id,
           content: displayContent,
           created_at: event.created_at,
-          sent: false,
-          pubkey: senderPubkey
+          sent: isOutgoing,
+          pubkey: event.pubkey
         }
-        // Ensure we have a peer record for the sender
-        this.addPeer(senderPubkey)
-        // Add the message
-        this.addMessage(senderPubkey, message)
+        // Ensure we have a peer record for the other party (the peer we're chatting with)
+        this.addPeer(otherPartyPubkey)
+        // Add the message to the peer's conversation
+        this.addMessage(otherPartyPubkey, message)
       }
     } catch (error) {
       console.error('Failed to process incoming message:', error)