diff --git a/backend/.env.docker b/backend/.env.docker
index 01034a9..8c262bf 100644
--- a/backend/.env.docker
+++ b/backend/.env.docker
@@ -4,6 +4,9 @@
 NODE_ENV=production
 PORT=3000
 
+# Enable local development initialization
+INIT_LOCAL_DEV=true
+
 # JWT Secrets - IMPORTANT: Use secure random strings in production
 JWT_ACCESS_SECRET=dd01992053448ebc129e4f12366596351e4c2d95ffe9b798104fcc80eff11c28
 JWT_REFRESH_SECRET=67bf4928a666ac3d46e991398a0a7e5aa2ec15ca206316b1126f31d2247498d4
@@ -14,9 +17,10 @@ REDIS_URL=redis://redis:6379
 # Database - Use Docker service name and container port
 DATABASE_URL=postgresql://postgres:password@postgres:5432/boxmeout_dev?schema=public
 
-# Stellar/Soroban
-STELLAR_NETWORK=testnet
-STELLAR_SOROBAN_RPC_URL=https://soroban-testnet.stellar.org
+# Stellar/Soroban - Local standalone network
+STELLAR_NETWORK=standalone
+STELLAR_HORIZON_URL=http://soroban:8000
+STELLAR_SOROBAN_RPC_URL=http://soroban:8001
 
 # Contract Addresses (set after deployment)
 MARKET_CONTRACT_ADDRESS=
diff --git a/backend/DOCKER_LOCAL_DEV.md b/backend/DOCKER_LOCAL_DEV.md
new file mode 100644
index 0000000..bad3e57
--- /dev/null
+++ b/backend/DOCKER_LOCAL_DEV.md
@@ -0,0 +1,197 @@
+# Docker Compose Local Development Setup
+
+This document describes the local development environment with Soroban integration.
+
+## Overview
+
+The Docker Compose setup now includes:
+- **PostgreSQL** - Main database
+- **PostgreSQL Test** - Test database
+- **Redis** - Caching and session storage
+- **Soroban Node** - Local Stellar blockchain with Soroban smart contracts
+- **Backend** - Node.js API server with auto-initialization
+
+## Services
+
+### Soroban (Stellar Quickstart)
+- **Image**: `stellar/quickstart:testing`
+- **Ports**:
+  - `8000` - Horizon API (Stellar REST API)
+  - `8001` - Soroban RPC (Smart contract interaction)
+  - `11626` - Stellar Core peer port
+  - `11625` - Stellar Core admin port
+- **Network**: Standalone (local development)
+
+### Backend
+- **Auto-initialization**: On startup, the backend will:
+  1. Wait for Soroban node to be ready
+  2. Generate a deployer identity
+  3. Deploy test USDC token
+  4. Build and deploy all 5 Soroban contracts (Oracle, Factory, Treasury, AMM, Market)
+  5. Initialize contracts with proper configuration
+  6. Run database migrations
+  7. Seed database with test markets and users
+
+## Quick Start
+
+### 1. Start all services
+```bash
+cd backend
+docker-compose up -d
+```
+
+### 2. View logs
+```bash
+# All services
+docker-compose logs -f
+
+# Specific service
+docker-compose logs -f backend
+docker-compose logs -f soroban
+```
+
+### 3. Check initialization status
+The backend container will show initialization progress in the logs:
+```bash
+docker-compose logs -f backend | grep INIT
+```
+
+### 4. Access services
+- **Backend API**: http://localhost:3000
+- **Horizon API**: http://localhost:8000
+- **Soroban RPC**: http://localhost:8001
+- **PostgreSQL**: localhost:5434
+- **Redis**: localhost:6379
+
+## Test Credentials
+
+After seeding, you can login with:
+- **Email**: `admin@boxmeout.com`
+- **Password**: `password123`
+
+Other test users:
+- `john@example.com` / `password123`
+- `sarah@example.com` / `password123`
+- `mike@example.com` / `password123`
+
+## Contract Addresses
+
+After initialization, contract addresses are saved to `/app/.env.local` inside the container.
+
+To view them:
+```bash
+docker-compose exec backend cat /app/.env.local
+```
+
+## Manual Contract Interaction
+
+### Using Stellar CLI from host
+```bash
+# Install stellar CLI locally
+curl -L https://github.com/stellar/stellar-cli/releases/download/v21.5.0/stellar-cli-21.5.0-x86_64-unknown-linux-musl.tar.gz | tar xz
+
+# Interact with contracts
+./stellar contract invoke \
+  --id <CONTRACT_ID> \
+  --network standalone \
+  --rpc-url http://localhost:8001 \
+  -- <function_name> <args>
+```
+
+### Using Stellar CLI from container
+```bash
+docker-compose exec backend stellar contract invoke \
+  --id <CONTRACT_ID> \
+  --network standalone \
+  --rpc-url http://soroban:8001 \
+  -- <function_name> <args>
+```
+
+## Troubleshooting
+
+### Backend fails to start
+Check if Soroban is healthy:
+```bash
+curl http://localhost:8000/
+```
+
+### Contracts not deploying
+1. Check if contracts are built:
+```bash
+docker-compose exec backend ls -la /app/contracts/contracts/boxmeout/target/wasm32-unknown-unknown/release/
+```
+
+2. Rebuild contracts manually:
+```bash
+docker-compose exec backend bash
+cd /app/contracts
+cargo build --release --target wasm32-unknown-unknown
+```
+
+### Reset everything
+```bash
+docker-compose down -v
+docker-compose up -d
+```
+
+## Environment Variables
+
+Key environment variables in `.env.docker`:
+- `INIT_LOCAL_DEV=true` - Enables auto-initialization
+- `STELLAR_NETWORK=standalone` - Uses local Soroban node
+- `STELLAR_HORIZON_URL=http://soroban:8000` - Horizon API endpoint
+- `STELLAR_SOROBAN_RPC_URL=http://soroban:8001` - Soroban RPC endpoint
+
+## Development Workflow
+
+1. **Start services**: `docker-compose up -d`
+2. **Make code changes**: Edit files locally
+3. **Rebuild backend**: `docker-compose up -d --build backend`
+4. **View logs**: `docker-compose logs -f backend`
+5. **Run tests**: `docker-compose exec backend npm test`
+6. **Stop services**: `docker-compose down`
+
+## Database Management
+
+### Run migrations
+```bash
+docker-compose exec backend npx prisma migrate dev
+```
+
+### Seed database
+```bash
+docker-compose exec backend npx prisma db seed
+```
+
+### Access database
+```bash
+docker-compose exec postgres psql -U postgres -d boxmeout_dev
+```
+
+## Backup and Restore
+
+The `db-backup` service automatically backs up the database every 6 hours.
+
+### Manual backup
+```bash
+docker-compose exec db-backup /scripts/backup.sh
+```
+
+### Restore from backup
+```bash
+docker-compose exec db-backup /scripts/restore.sh <backup_file>
+```
+
+## Production Deployment
+
+For production, disable auto-initialization:
+1. Set `INIT_LOCAL_DEV=false` in `.env.docker`
+2. Use testnet or mainnet Soroban RPC URLs
+3. Deploy contracts manually using `../deploy.sh`
+4. Update contract addresses in `.env`
+
+## Additional Resources
+
+- [Stellar Documentation](https://developers.stellar.org/)
+- [Soroban Documentation](https://soroban.stellar.org/)
+- [Stellar Quickstart](https://github.com/stellar/quickstart)
diff --git a/backend/Dockerfile b/backend/Dockerfile
index 40084f8..751e93f 100644
--- a/backend/Dockerfile
+++ b/backend/Dockerfile
@@ -4,8 +4,20 @@ FROM node:20-alpine
 # Set working directory
 WORKDIR /app
 
-# Install OpenSSL for Prisma (use openssl3 for modern Alpine)
-RUN apk add --no-cache openssl
+# Install system dependencies
+# - OpenSSL for Prisma
+# - curl for health checks and API calls
+# - bash for init scripts
+# - cargo/rust for building Soroban contracts (if needed)
+RUN apk add --no-cache \
+    openssl \
+    curl \
+    bash \
+    git \
+    build-base
+
+# Install Stellar CLI
+RUN curl -L https://github.com/stellar/stellar-cli/releases/download/v21.5.0/stellar-cli-21.5.0-x86_64-unknown-linux-musl.tar.gz | tar xz -C /usr/local/bin
 
 # Copy package files
 COPY package*.json ./
@@ -26,8 +38,26 @@ COPY . .
 # Build the application
 RUN npm run build
 
+# Copy initialization script
+COPY scripts/init-local-dev.sh /app/scripts/init-local-dev.sh
+RUN chmod +x /app/scripts/init-local-dev.sh
+
 # Expose port
 EXPOSE 3000
 
-# Start the application
-CMD ["npm", "start"]
\ No newline at end of file
+# Create entrypoint script
+RUN echo '#!/bin/bash\n\
+set -e\n\
+\n\
+# Run initialization if INIT_LOCAL_DEV is set\n\
+if [ "$INIT_LOCAL_DEV" = "true" ]; then\n\
+  echo "Running local development initialization..."\n\
+  /app/scripts/init-local-dev.sh\n\
+fi\n\
+\n\
+# Start the application\n\
+exec npm start\n\
+' > /app/entrypoint.sh && chmod +x /app/entrypoint.sh
+
+# Use custom entrypoint
+ENTRYPOINT ["/app/entrypoint.sh"]
\ No newline at end of file
diff --git a/backend/docker-compose.yml b/backend/docker-compose.yml
index 60cd76a..88d1e74 100644
--- a/backend/docker-compose.yml
+++ b/backend/docker-compose.yml
@@ -1,6 +1,28 @@
 version: '3.8'
 
 services:
+  soroban:
+    image: stellar/quickstart:testing
+    container_name: boxmeout_soroban
+    command: --standalone --enable-soroban-rpc
+    ports:
+      - "8000:8000"   # Horizon API
+      - "8001:8001"   # Soroban RPC
+      - "11626:11626" # Stellar Core peer port
+      - "11625:11625" # Stellar Core admin port
+    environment:
+      - NETWORK_PASSPHRASE=Standalone Network ; February 2017
+      - SOROBAN_RPC_ENABLED=true
+    healthcheck:
+      test: ["CMD", "curl", "-f", "http://localhost:8000/"]
+      interval: 10s
+      timeout: 5s
+      retries: 10
+      start_period: 30s
+    networks:
+      - boxmeout_network
+    restart: unless-stopped
+
   backend:
     build: .
     container_name: boxmeout_backend
@@ -13,6 +35,8 @@ services:
         condition: service_healthy
       redis:
         condition: service_healthy
+      soroban:
+        condition: service_healthy
     networks:
       - boxmeout_network
     restart: unless-stopped
diff --git a/backend/scripts/init-local-dev.sh b/backend/scripts/init-local-dev.sh
new file mode 100644
index 0000000..6df0611
--- /dev/null
+++ b/backend/scripts/init-local-dev.sh
@@ -0,0 +1,210 @@
+#!/bin/bash
+# =============================================================================
+# BoxMeOut Stella - Local Development Initialization Script
+# =============================================================================
+# This script runs inside the Docker container to:
+# 1. Wait for Soroban node to be ready
+# 2. Deploy and initialize all contracts to local Soroban
+# 3. Run database migrations
+# 4. Seed database with test markets
+# =============================================================================
+
+set -e
+
+# Colors
+RED='\033[0;31m'
+GREEN='\033[0;32m'
+YELLOW='\033[1;33m'
+BLUE='\033[0;34m'
+NC='\033[0m'
+
+log_info()    { echo -e "${BLUE}[INIT]${NC} $1"; }
+log_success() { echo -e "${GREEN}[OK]${NC} $1"; }
+log_error()   { echo -e "${RED}[ERROR]${NC} $1"; }
+
+# Configuration
+SOROBAN_RPC_URL="${SOROBAN_RPC_URL:-http://soroban:8001}"
+HORIZON_URL="${HORIZON_URL:-http://soroban:8000}"
+MAX_RETRIES=30
+RETRY_DELAY=2
+
+# Wait for Soroban RPC to be ready
+log_info "Waiting for Soroban RPC at $SOROBAN_RPC_URL..."
+for i in $(seq 1 $MAX_RETRIES); do
+    if curl -s -X POST "$SOROBAN_RPC_URL" \
+        -H "Content-Type: application/json" \
+        -d '{"jsonrpc":"2.0","id":1,"method":"getHealth"}' | grep -q "healthy"; then
+        log_success "Soroban RPC is ready"
+        break
+    fi
+    
+    if [ $i -eq $MAX_RETRIES ]; then
+        log_error "Soroban RPC failed to become ready after $MAX_RETRIES attempts"
+        exit 1
+    fi
+    
+    log_info "Attempt $i/$MAX_RETRIES - waiting ${RETRY_DELAY}s..."
+    sleep $RETRY_DELAY
+done
+
+# Check if stellar CLI is available
+if ! command -v stellar &> /dev/null; then
+    log_error "stellar CLI not found. Install it in the Docker image."
+    exit 1
+fi
+
+# Generate or load deployer identity
+log_info "Setting up deployer identity..."
+if ! stellar keys address deployer &> /dev/null 2>&1; then
+    stellar keys generate deployer --network standalone
+    log_success "Generated new deployer identity"
+else
+    log_info "Using existing deployer identity"
+fi
+
+ADMIN_ADDRESS=$(stellar keys address deployer)
+log_info "Admin address: $ADMIN_ADDRESS"
+
+# Fund the admin account on standalone network
+log_info "Funding admin account..."
+curl -s "$HORIZON_URL/friendbot?addr=$ADMIN_ADDRESS" > /dev/null || true
+log_success "Admin account funded"
+
+# Deploy test USDC token
+log_info "Deploying test USDC token..."
+USDC_TOKEN_ADDRESS=$(stellar contract asset deploy \
+    --asset "USDC:$ADMIN_ADDRESS" \
+    --source deployer \
+    --network standalone \
+    --rpc-url "$SOROBAN_RPC_URL" 2>&1 | tail -1)
+log_success "USDC token deployed: $USDC_TOKEN_ADDRESS"
+
+# Build contracts if WASMs don't exist
+WASM_DIR="/app/contracts/contracts/boxmeout/target/wasm32-unknown-unknown/release"
+if [ ! -f "$WASM_DIR/oracle.wasm" ]; then
+    log_info "Building contracts..."
+    cd /app/contracts
+    cargo build --release --target wasm32-unknown-unknown
+    log_success "Contracts built"
+fi
+
+# Deploy contracts
+log_info "Deploying contracts..."
+declare -A CONTRACT_IDS
+
+for contract in oracle factory treasury amm market; do
+    log_info "Deploying ${contract}..."
+    wasm_file="$WASM_DIR/${contract}.wasm"
+    
+    if [ ! -f "$wasm_file" ]; then
+        log_error "WASM file not found: $wasm_file"
+        exit 1
+    fi
+    
+    contract_id=$(stellar contract deploy \
+        --wasm "$wasm_file" \
+        --source deployer \
+        --network standalone \
+        --rpc-url "$SOROBAN_RPC_URL" 2>&1 | tail -1)
+    
+    CONTRACT_IDS[$contract]="$contract_id"
+    log_success "${contract} deployed: $contract_id"
+done
+
+# Initialize contracts
+log_info "Initializing Oracle..."
+stellar contract invoke \
+    --id "${CONTRACT_IDS[oracle]}" \
+    --source deployer \
+    --network standalone \
+    --rpc-url "$SOROBAN_RPC_URL" \
+    -- initialize \
+    --admin "$ADMIN_ADDRESS" \
+    --required_consensus 2
+
+log_info "Initializing Factory..."
+stellar contract invoke \
+    --id "${CONTRACT_IDS[factory]}" \
+    --source deployer \
+    --network standalone \
+    --rpc-url "$SOROBAN_RPC_URL" \
+    -- initialize \
+    --admin "$ADMIN_ADDRESS" \
+    --usdc "$USDC_TOKEN_ADDRESS" \
+    --treasury "${CONTRACT_IDS[treasury]}"
+
+log_info "Initializing Treasury..."
+stellar contract invoke \
+    --id "${CONTRACT_IDS[treasury]}" \
+    --source deployer \
+    --network standalone \
+    --rpc-url "$SOROBAN_RPC_URL" \
+    -- initialize \
+    --admin "$ADMIN_ADDRESS" \
+    --usdc_contract "$USDC_TOKEN_ADDRESS" \
+    --factory "${CONTRACT_IDS[factory]}"
+
+log_info "Initializing AMM..."
+stellar contract invoke \
+    --id "${CONTRACT_IDS[amm]}" \
+    --source deployer \
+    --network standalone \
+    --rpc-url "$SOROBAN_RPC_URL" \
+    -- initialize \
+    --admin "$ADMIN_ADDRESS" \
+    --factory "${CONTRACT_IDS[factory]}" \
+    --usdc_token "$USDC_TOKEN_ADDRESS" \
+    --max_liquidity_cap 10000000000000
+
+log_success "All contracts initialized"
+
+# Update environment variables
+log_info "Updating environment variables..."
+cat > /app/.env.local <<EOF
+STELLAR_NETWORK=standalone
+STELLAR_HORIZON_URL=$HORIZON_URL
+STELLAR_SOROBAN_RPC_URL=$SOROBAN_RPC_URL
+ORACLE_CONTRACT_ADDRESS=${CONTRACT_IDS[oracle]}
+FACTORY_CONTRACT_ADDRESS=${CONTRACT_IDS[factory]}
+TREASURY_CONTRACT_ADDRESS=${CONTRACT_IDS[treasury]}
+AMM_CONTRACT_ADDRESS=${CONTRACT_IDS[amm]}
+MARKET_CONTRACT_ADDRESS=${CONTRACT_IDS[market]}
+USDC_TOKEN_ADDRESS=$USDC_TOKEN_ADDRESS
+ADMIN_WALLET_SECRET=$(stellar keys show deployer)
+ADMIN_ADDRESS=$ADMIN_ADDRESS
+EOF
+
+# Export for current session
+export STELLAR_NETWORK=standalone
+export STELLAR_HORIZON_URL=$HORIZON_URL
+export STELLAR_SOROBAN_RPC_URL=$SOROBAN_RPC_URL
+export ORACLE_CONTRACT_ADDRESS=${CONTRACT_IDS[oracle]}
+export FACTORY_CONTRACT_ADDRESS=${CONTRACT_IDS[factory]}
+export TREASURY_CONTRACT_ADDRESS=${CONTRACT_IDS[treasury]}
+export AMM_CONTRACT_ADDRESS=${CONTRACT_IDS[amm]}
+export MARKET_CONTRACT_ADDRESS=${CONTRACT_IDS[market]}
+export USDC_TOKEN_ADDRESS=$USDC_TOKEN_ADDRESS
+
+log_success "Environment variables updated"
+
+# Run database migrations
+log_info "Running database migrations..."
+cd /app
+npx prisma migrate deploy
+log_success "Database migrations complete"
+
+# Seed database
+log_info "Seeding database with test markets..."
+npx prisma db seed
+log_success "Database seeded"
+
+log_success "Local development environment initialized successfully!"
+echo ""
+echo "Contract Addresses:"
+echo "  Oracle:   ${CONTRACT_IDS[oracle]}"
+echo "  Factory:  ${CONTRACT_IDS[factory]}"
+echo "  Treasury: ${CONTRACT_IDS[treasury]}"
+echo "  AMM:      ${CONTRACT_IDS[amm]}"
+echo "  Market:   ${CONTRACT_IDS[market]}"
+echo "  USDC:     $USDC_TOKEN_ADDRESS"
+echo ""