diff --git a/observability-example/README.md b/observability-example/README.md
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+# Example observability stack (OTel Collector, Jaeger, Prometheus)
+
+This directory runs an OpenTelemetry Collector, intended as an example or for testing new telemetry data. The collector receives telemetry from Tangle and forwards traces to Jaeger and metrics to Prometheus.
+
+## Start the stack
+
+From this directory:
+
+```bash
+docker-compose up -d
+```
+
+To view logs:
+
+```bash
+docker-compose logs -f
+```
+
+To stop:
+
+```bash
+docker-compose down
+```
+
+## Configure Tangle to export to the collector
+
+Set these environment variables when running the Tangle API so it sends traces and metrics to the collector:
+
+| Variable | Value | Description |
+|----------|--------|-------------|
+| `TANGLE_OTEL_EXPORTER_ENDPOINT` | `http://localhost:4317` | OTLP collector address (gRPC). Use `host.docker.internal:4317` if Tangle runs inside Docker. |
+| `TANGLE_OTEL_EXPORTER_PROTOCOL` | `grpc` | Protocol for the exporter (default). This stack only accepts gRPC. |
+| `TANGLE_ENV` | optional | Included in the service name (e.g. `tangle-development`). Default: `development`. |
+
+Example (shell):
+
+```bash
+export TANGLE_OTEL_EXPORTER_ENDPOINT=http://localhost:4317
+export TANGLE_OTEL_EXPORTER_PROTOCOL=grpc
+# then start your Tangle API
+```
+
+Example (`.env` in the project root or where the API is started):
+
+```
+TANGLE_OTEL_EXPORTER_ENDPOINT=http://localhost:4317
+TANGLE_OTEL_EXPORTER_PROTOCOL=grpc
+```
+
+If `TANGLE_OTEL_EXPORTER_ENDPOINT` is unset, tracing and metrics export are disabled.
+
+## UIs
+
+- **Jaeger** (traces): http://localhost:16686  
+- **Prometheus** (metrics): http://localhost:9090  
+
+## Ports
+
+| Port | Service | Purpose |
+|------|---------|---------|
+| 4317 | OTel Collector | OTLP gRPC (ingest) |
+| 9464 | OTel Collector | Prometheus scrape endpoint |
+| 8888 | OTel Collector | Collector telemetry |
+| 16686 | Jaeger | Web UI |
+| 9090 | Prometheus | Web UI |
diff --git a/observability-example/docker-compose.yml b/observability-example/docker-compose.yml
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+# Observability stack for Tangle: OpenTelemetry Collector, Jaeger (traces), Prometheus (metrics).
+#
+# Run from this directory: docker compose up -d
+#
+# Point the Tangle API at the collector so traces/metrics are exported:
+#   TANGLE_OTEL_EXPORTER_ENDPOINT=http://localhost:4317
+#   TANGLE_OTEL_EXPORTER_PROTOCOL=grpc
+#
+# UIs:
+#   Jaeger:    http://localhost:16686
+#   Prometheus: http://localhost:9090
+
+services:
+  otel-collector:
+    image: otel/opentelemetry-collector-contrib:latest
+    container_name: tangle-otel-collector
+    command: ["--config=/etc/otel-collector-config.yaml"]
+    volumes:
+      - ./otel-collector-config.yaml:/etc/otel-collector-config.yaml:ro
+    ports:
+      - "4317:4317"   # OTLP gRPC
+      - "9464:9464"   # Prometheus scrape (metrics from OTLP)
+      - "8888:8888"   # Collector telemetry
+    depends_on:
+      - jaeger
+    restart: unless-stopped
+
+  jaeger:
+    image: jaegertracing/all-in-one:latest
+    container_name: tangle-jaeger
+    environment:
+      - COLLECTOR_OTLP_ENABLED=true
+    ports:
+      - "16686:16686"   # Jaeger UI (traces)
+    restart: unless-stopped
+
+  prometheus:
+    image: prom/prometheus:latest
+    container_name: tangle-prometheus
+    command:
+      - --config.file=/etc/prometheus/prometheus.yml
+      - --storage.tsdb.path=/prometheus
+      - --web.enable-lifecycle
+    volumes:
+      - ./prometheus.yml:/etc/prometheus/prometheus.yml:ro
+      - prometheus_data:/prometheus
+    ports:
+      - "9090:9090"
+    depends_on:
+      - otel-collector
+    restart: unless-stopped
+
+volumes:
+  prometheus_data: {}
diff --git a/observability-example/otel-collector-config.yaml b/observability-example/otel-collector-config.yaml
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+# OpenTelemetry Collector config: receive OTLP, export traces to Jaeger and metrics for Prometheus scrape.
+
+receivers:
+  otlp:
+    protocols:
+      grpc:
+        endpoint: 0.0.0.0:4317
+
+processors:
+  batch: {}
+
+exporters:
+  # Traces → Jaeger (OTLP gRPC)
+  otlp/jaeger:
+    endpoint: jaeger:4317
+    tls:
+      insecure: true
+
+  # Metrics → expose scrape endpoint for Prometheus
+  prometheus:
+    endpoint: "0.0.0.0:9464"
+    namespace: tangle
+
+service:
+  pipelines:
+    traces:
+      receivers: [otlp]
+      processors: [batch]
+      exporters: [otlp/jaeger]
+    metrics:
+      receivers: [otlp]
+      processors: [batch]
+      exporters: [prometheus]
+
+  telemetry:
+    logs:
+      level: info
+    metrics:
+      readers:
+        - pull:
+            exporter:
+              prometheus:
+                host: "0.0.0.0"
+                port: 8888
diff --git a/observability-example/prometheus.yml b/observability-example/prometheus.yml
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+# Prometheus config: scrape OpenTelemetry Collector metrics and self.
+global:
+  scrape_interval: 15s
+  evaluation_interval: 15s
+
+scrape_configs:
+  # OpenTelemetry Collector metrics (app metrics sent via OTLP are exposed here for scrape)
+  - job_name: otel-collector
+    static_configs:
+      - targets: ["otel-collector:9464"]
+
+  # Collector's own telemetry
+  - job_name: otel-collector-telemetry
+    static_configs:
+      - targets: ["otel-collector:8888"]
+
+  # Prometheus self
+  - job_name: prometheus
+    static_configs:
+      - targets: ["localhost:9090"]