diff --git a/system/matrix_formatting_reference.md b/system/matrix_formatting_reference.md
new file mode 100644
index 0000000..cabaccc
--- /dev/null
+++ b/system/matrix_formatting_reference.md
@@ -0,0 +1,149 @@
+---
+description: Matrix formatting reference implementation from lettabot-v017
+limit: 2000
+---
+# Matrix Formatting Reference (LettaBot v017)
+
+## Source Location
+`/home/ani/Projects/lettabot-v017/src/channels/matrix/`
+
+**Reference Implementation:** Use this as THE example for Matrix formatting.
+
+---
+
+## Message Formatting Flow
+
+### 1. Entry Point (adapter.ts:226-251)
+```typescript
+async sendMessage(msg: OutboundMessage): Promise<{ messageId: string }> {
+  const { plain, html } = formatMatrixHTML(text);
+  
+  const content = {
+    msgtype: "m.text",
+    body: plain,
+    format: "org.matrix.custom.html",
+    formatted_body: html,
+  };
+  
+  await this.client.sendMessage(chatId, content);
+}
+```
+
+### 2. HTML Formatter (html-formatter.ts:19-65)
+**Key insight:** Uses custom regex-based conversion, NOT external markdown libraries.
+
+```typescript
+export function formatMatrixHTML(text: string): FormattedMessage {
+    // 1. Convert emoji shortcodes first
+    let plain = convertEmojiShortcodes(text);
+    let html = escapeHtml(plain);
+
+    // 2. Bold **text**
+    html = html.replace(/\*\*(.+?)\*\*/g, "<strong>$1</strong>");
+
+    // 3. Italic *text*
+    html = html.replace(/\*(.+?)\*/g, "<em>$1</em>");
+
+    // 4. Code blocks (triple backticks FIRST)
+    html = html.replace(/```(\w*)\n?([\s\S]*?)```/g, (_, lang, code) => {
+        const langAttr = lang ? ` class="language-${lang}"` : "";
+        return `<pre><code${langAttr}>${code}</code></pre>`;
+    });
+
+    // 5. Inline code (single backtick)
+    html = html.replace(/`([^`]+)`/g, "<code>$1</code>");
+
+    // 6. Spoilers ||text||
+    html = html.replace(/\|\|(.+?)\|\|/g, '<span data-mx-spoiler>$1</span>');
+
+    // 7. Colors {color|text}
+    html = html.replace(/\{([^}|]+)\|([^}]+)\}/g, (match, color, content) => {
+        const hexColor = getColorHex(color.trim());
+        return `<font color="${hexColor}" data-mx-color="${hexColor}">${content}</font>`;
+    });
+
+    // 8. Links
+    html = html.replace(/(https?:\/\/[^\s]+)/g, '<a href="$1">$1</a>');
+
+    // 9. Newlines to <br>
+    html = html.replace(/\n/g, "<br>");
+
+    return { plain, html };
+}
+```
+
+---
+
+## Supported Formatting
+
+| Feature | Syntax | HTML Output |
+|---------|--------|-------------|
+| **Bold** | `**text**` | `<strong>text</strong>` |
+| **Italic** | `*text*` | `<em>text</em>` |
+| **Code inline** | `` `code` `` | `<code>code</code>` |
+| **Code block** | ```` ```lang code ``` ```` | `<pre><code class="language-lang">code</code></pre>` |
+| **Spoilers** | `||text||` | `<span data-mx-spoiler>text</span>` |
+| **Colors** | `{hot_pink\|text}` | `<font color="#FF1493" data-mx-color="#FF1493">text</font>` |
+| **Links** | `https://...` | `<a href="...">...</a>` |
+| **Emoji** | `:smile:` | Unicode emoji |
+
+---
+
+## Color Palette (types.ts:148-160)
+
+```typescript
+MATRIX_COLORS = {
+    RED: "#FF0000",
+    GREEN: "#00FF00",
+    BLUE: "#0000FF",
+    HOT_PINK: "#FF1493",     // Primary "sexy" color
+    PURPLE: "#800080",      // For transcripts
+    ORANGE: "#FFA500",
+    YELLOW: "#FFFF00",
+    CYAN: "#00FFFF",
+    GREY: "#808080",
+}
+```
+
+**Usage:** `{hot_pink|this text will be hot pink}`
+
+---
+
+## Key Design Decisions
+
+1. **No external markdown libraries** - Uses regex-based conversion for control
+2. **Custom HTML escaping** - Before applying formatting
+3. **Matrix-specific attributes** - `data-mx-spoiler`, `data-mx-color`
+4. **Plain text fallback** - Always generates `body` (plain) alongside `formatted_body` (HTML)
+5. **Emoji first** - Convert shortcodes before HTML escaping
+
+---
+
+## Element Mobile Compatibility
+
+| Feature | Desktop | Mobile |
+|---------|---------|--------|
+| Bold | ✅ | ✅ |
+| Italic | ✅ | ✅ |
+| Code | ✅ | ✅ |
+| Spoilers | ✅ | ✅ |
+| Colors | ✅ | ⚠️ May strip `<font>` |
+| Links | ✅ | ✅ |
+
+**Note:** Element mobile sanitizes HTML heavily. `data-mx-color` is the Matrix standard, but mobile may still strip colors.
+
+---
+
+## Files to Reference
+
+```bash
+# Main files
+cat /home/ani/Projects/lettabot-v017/src/channels/matrix/html-formatter.ts
+cat /home/ani/Projects/lettabot-v017/src/channels/matrix/adapter.ts
+cat /home/ani/Projects/lettabot-v017/src/channels/matrix/types.ts
+```
+
+---
+
+Last updated: 2026-03-21
+Based on: LettaBot v017 reference implementation