diff --git a/internal/migrations/033-order-book-settlement.sql b/internal/migrations/033-order-book-settlement.sql
index 71ae01ea..c28aa8a1 100644
--- a/internal/migrations/033-order-book-settlement.sql
+++ b/internal/migrations/033-order-book-settlement.sql
@@ -94,8 +94,15 @@ CREATE OR REPLACE ACTION distribute_fees(
 
         $actual_dp_fees := $infra_share;
 
+        -- Ensure DP has a participant record so the fee is tracked in ob_net_impacts
         $dp_pid INT;
         for $p in SELECT id FROM ob_participants WHERE wallet_address = $dp_addr { $dp_pid := $p.id; }
+        if $dp_pid IS NULL {
+            INSERT INTO ob_participants (id, wallet_address)
+            SELECT COALESCE(MAX(id), 0) + 1, $dp_addr
+            FROM ob_participants;
+            for $p in SELECT id FROM ob_participants WHERE wallet_address = $dp_addr { $dp_pid := $p.id; }
+        }
         if $dp_pid IS NOT NULL {
             $next_id_dp INT;
             for $row in SELECT COALESCE(MAX(id), 0::INT) + 1 as val FROM ob_net_impacts { $next_id_dp := $row.val; }
@@ -113,9 +120,16 @@ CREATE OR REPLACE ACTION distribute_fees(
 
         $actual_validator_fees := $infra_share;
 
+        -- Ensure Validator has a participant record so the fee is tracked in ob_net_impacts
         $val_pid INT;
         $leader_bytes BYTEA := tn_utils.get_leader_bytes();
         for $p in SELECT id FROM ob_participants WHERE wallet_address = $leader_bytes { $val_pid := $p.id; }
+        if $val_pid IS NULL AND $leader_bytes IS NOT NULL {
+            INSERT INTO ob_participants (id, wallet_address)
+            SELECT COALESCE(MAX(id), 0) + 1, $leader_bytes
+            FROM ob_participants;
+            for $p in SELECT id FROM ob_participants WHERE wallet_address = $leader_bytes { $val_pid := $p.id; }
+        }
         if $val_pid IS NOT NULL {
             $next_id_val INT;
             for $row in SELECT COALESCE(MAX(id), 0::INT) + 1 as val FROM ob_net_impacts { $next_id_val := $row.val; }
diff --git a/tests/streams/order_book/fee_distribution_test.go b/tests/streams/order_book/fee_distribution_test.go
index cfc102fc..c86dbb00 100644
--- a/tests/streams/order_book/fee_distribution_test.go
+++ b/tests/streams/order_book/fee_distribution_test.go
@@ -11,6 +11,7 @@ import (
 
 	"github.com/stretchr/testify/require"
 	"github.com/trufnetwork/kwil-db/common"
+	"github.com/trufnetwork/kwil-db/core/crypto"
 	coreauth "github.com/trufnetwork/kwil-db/core/crypto/auth"
 	kwilTypes "github.com/trufnetwork/kwil-db/core/types"
 	erc20bridge "github.com/trufnetwork/kwil-db/node/exts/erc20-bridge/erc20"
@@ -36,6 +37,8 @@ func TestFeeDistribution(t *testing.T) {
 			testDistributionZeroFees(t),
 			// Single LP scenario: 1 LP gets 100% of fees
 			testDistribution1LP(t),
+			// DP/Validator auto-participant creation: non-trading DP and Validator get fees
+			testDistributionDPValidatorAutoParticipant(t),
 		},
 	}, testutils.GetTestOptionsWithCache())
 }
@@ -859,3 +862,251 @@ func testDistribution1LP(t *testing.T) func(context.Context, *kwilTesting.Platfo
 		return nil
 	}
 }
+
+// testDistributionDPValidatorAutoParticipant tests that a DP and Validator who never placed
+// orders get auto-created as ob_participants and receive their 12.5% fee shares.
+// Scenario: DP is a separate address that never trades. LP users place orders.
+// After distribute_fees, DP should have a participant entry and received USDC.
+func testDistributionDPValidatorAutoParticipant(t *testing.T) func(context.Context, *kwilTesting.Platform) error {
+	return func(ctx context.Context, platform *kwilTesting.Platform) error {
+		// Reset balance point tracker
+		lastBalancePoint = nil
+		lastTrufBalancePoint = nil
+
+		// Initialize ERC20 extension
+		err := erc20bridge.ForTestingInitializeExtension(ctx, platform)
+		require.NoError(t, err)
+
+		// DP address: does NOT place any orders (no ob_participants entry before distribution)
+		dpAddress := util.Unsafe_NewEthereumAddressFromString("0x5555555555555555555555555555555555555555")
+
+		// LP users: these place orders and will have ob_participants entries
+		user1 := util.Unsafe_NewEthereumAddressFromString("0x6666666666666666666666666666666666666666")
+		user2 := util.Unsafe_NewEthereumAddressFromString("0x7777777777777777777777777777777777777777")
+
+		// Give LP users balance (DP doesn't need balance — they receive fees, not place orders)
+		err = giveBalanceChained(ctx, platform, user1.Address(), "1000000000000000000000")
+		require.NoError(t, err)
+		err = giveBalanceChained(ctx, platform, user2.Address(), "1000000000000000000000")
+		require.NoError(t, err)
+
+		// Create market with dpAddress as the Data Provider (NOT user1)
+		queryComponents, err := encodeQueryComponentsForTests(dpAddress.Address(), "sttest00000000000000000000000070", "get_record", []byte{0x01})
+		require.NoError(t, err)
+		settleTime := time.Now().Add(24 * time.Hour).Unix()
+
+		var marketID int64
+		err = callCreateMarket(ctx, platform, &user1, queryComponents, settleTime, 5, 20, func(row *common.Row) error {
+			marketID = row.Values[0].(int64)
+			return nil
+		})
+		require.NoError(t, err)
+		t.Logf("Created market ID: %d (DP=%s)", marketID, dpAddress.Address()[:10])
+
+		// Verify DP does NOT have a participant entry yet
+		var dpParticipantCount int
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT COUNT(*) as cnt FROM ob_participants WHERE wallet_address = decode(substring($wallet, 3, 40), 'hex')",
+			map[string]any{"$wallet": dpAddress.Address()},
+			func(row *common.Row) error {
+				dpParticipantCount = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+		require.Equal(t, 0, dpParticipantCount, "DP should NOT have a participant entry before distribution")
+
+		// Setup LP scenario: user1 and user2 place LP pair orders
+		setupLPScenario(t, ctx, platform, &user1, &user2, int(marketID))
+
+		// Sample LP rewards
+		err = triggerBatchSampling(ctx, platform, 1000)
+		require.NoError(t, err)
+
+		// Get DP USDC balance before distribution
+		dpBalanceBefore, err := getUSDCBalance(ctx, platform, dpAddress.Address())
+		require.NoError(t, err)
+		t.Logf("DP USDC balance before: %s", dpBalanceBefore.String())
+
+		// Distribute 10 TRUF fees using a known proposer key (Validator)
+		totalFees := new(big.Int).Mul(big.NewInt(10), big.NewInt(1e18))
+
+		// Fund vault
+		err = giveUSDCBalanceChained(ctx, platform, testUSDCEscrow, totalFees.String())
+		require.NoError(t, err)
+		_, err = erc20bridge.ForTestingForceSyncInstance(ctx, platform, testChain, testEscrow, testERC20, 18)
+		require.NoError(t, err)
+
+		totalFeesDecimal, err := kwilTypes.ParseDecimalExplicit(totalFees.String(), 78, 0)
+		require.NoError(t, err)
+
+		// Generate a known proposer key — this becomes the Validator address
+		pub := NewTestProposerPub(t)
+		validatorAddr := fmt.Sprintf("0x%x", crypto.EthereumAddressFromPubKey(pub))
+		t.Logf("Validator address: %s", validatorAddr)
+
+		// Call distribute_fees with user1 as caller but dpAddress as DP
+		tx := &common.TxContext{
+			Ctx: ctx,
+			BlockContext: &common.BlockContext{
+				Height:    1,
+				Timestamp: time.Now().Unix(),
+				Proposer:  pub,
+			},
+			Signer:        user1.Bytes(),
+			Caller:        user1.Address(),
+			TxID:          platform.Txid(),
+			Authenticator: coreauth.EthPersonalSignAuth,
+		}
+		engineCtx := &common.EngineContext{TxContext: tx, OverrideAuthz: true}
+
+		res, err := platform.Engine.Call(
+			engineCtx,
+			platform.DB,
+			"",
+			"distribute_fees",
+			[]any{int(marketID), totalFeesDecimal, true},
+			nil,
+		)
+		require.NoError(t, err)
+		if res.Error != nil {
+			t.Fatalf("distribute_fees error: %v", res.Error)
+		}
+
+		// =====================================================================
+		// Verify 1: DP was auto-created as participant
+		// =====================================================================
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT COUNT(*) as cnt FROM ob_participants WHERE wallet_address = decode(substring($wallet, 3, 40), 'hex')",
+			map[string]any{"$wallet": dpAddress.Address()},
+			func(row *common.Row) error {
+				dpParticipantCount = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+		require.Equal(t, 1, dpParticipantCount, "DP should be auto-created as participant after distribution")
+		t.Logf("DP auto-created in ob_participants")
+
+		// =====================================================================
+		// Verify 2: Validator was auto-created as participant
+		// =====================================================================
+		var valParticipantCount int
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT COUNT(*) as cnt FROM ob_participants WHERE wallet_address = decode(substring($wallet, 3, 40), 'hex')",
+			map[string]any{"$wallet": validatorAddr},
+			func(row *common.Row) error {
+				valParticipantCount = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+		require.Equal(t, 1, valParticipantCount, "Validator should be auto-created as participant after distribution")
+		t.Logf("Validator auto-created in ob_participants")
+
+		// =====================================================================
+		// Verify 3: DP received 12.5% fee share via USDC balance increase
+		// =====================================================================
+		dpBalanceAfter, err := getUSDCBalance(ctx, platform, dpAddress.Address())
+		require.NoError(t, err)
+
+		dpIncrease := new(big.Int).Sub(dpBalanceAfter, dpBalanceBefore)
+		expectedInfraShare := new(big.Int).Div(new(big.Int).Mul(totalFees, big.NewInt(125)), big.NewInt(1000))
+
+		require.Equal(t, expectedInfraShare.String(), dpIncrease.String(),
+			"DP should receive exactly 12.5%% of total fees")
+		t.Logf("DP received %s wei (12.5%% of %s)", dpIncrease.String(), totalFees.String())
+
+		// =====================================================================
+		// Verify 4: DP and Validator have ob_net_impacts entries
+		// =====================================================================
+		var dpPID int
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT id FROM ob_participants WHERE wallet_address = decode(substring($wallet, 3, 40), 'hex')",
+			map[string]any{"$wallet": dpAddress.Address()},
+			func(row *common.Row) error {
+				dpPID = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+
+		var dpImpactCount int
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT COUNT(*) as cnt FROM ob_net_impacts WHERE query_id = $query_id AND participant_id = $pid",
+			map[string]any{"$query_id": int(marketID), "$pid": dpPID},
+			func(row *common.Row) error {
+				dpImpactCount = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+		require.Equal(t, 1, dpImpactCount, "DP should have 1 net impact entry (fee reward)")
+
+		var valPID int
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT id FROM ob_participants WHERE wallet_address = decode(substring($wallet, 3, 40), 'hex')",
+			map[string]any{"$wallet": validatorAddr},
+			func(row *common.Row) error {
+				valPID = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+
+		var valImpactCount int
+		err = platform.Engine.Execute(
+			&common.EngineContext{TxContext: &common.TxContext{Ctx: ctx, BlockContext: &common.BlockContext{Height: 1}, TxID: platform.Txid()}},
+			platform.DB,
+			"SELECT COUNT(*) as cnt FROM ob_net_impacts WHERE query_id = $query_id AND participant_id = $pid",
+			map[string]any{"$query_id": int(marketID), "$pid": valPID},
+			func(row *common.Row) error {
+				valImpactCount = int(row.Values[0].(int64))
+				return nil
+			},
+		)
+		require.NoError(t, err)
+		require.Equal(t, 1, valImpactCount, "Validator should have 1 net impact entry (fee reward)")
+
+		t.Logf("DP (pid=%d) and Validator (pid=%d) both have ob_net_impacts entries", dpPID, valPID)
+
+		// =====================================================================
+		// Verify 5: Audit summary shows DP and Validator fees
+		// =====================================================================
+		var totalDPFeesStr string
+		var totalValFeesStr string
+
+		_, err = platform.Engine.Call(
+			&common.EngineContext{TxContext: &common.TxContext{
+				Ctx: ctx, BlockContext: &common.BlockContext{Height: 1, Timestamp: time.Now().Unix()},
+				Signer: user1.Bytes(), Caller: user1.Address(), TxID: platform.Txid(),
+				Authenticator: coreauth.EthPersonalSignAuth,
+			}, OverrideAuthz: true},
+			platform.DB, "", "get_distribution_summary", []any{int(marketID)},
+			func(row *common.Row) error {
+				totalDPFeesStr = row.Values[2].(*kwilTypes.Decimal).String()
+				totalValFeesStr = row.Values[3].(*kwilTypes.Decimal).String()
+				return nil
+			})
+		require.NoError(t, err)
+
+		require.Equal(t, expectedInfraShare.String(), totalDPFeesStr, "Audit should show DP fees")
+		require.Equal(t, expectedInfraShare.String(), totalValFeesStr, "Audit should show Validator fees")
+
+		t.Logf("Audit verified: DP fees=%s, Validator fees=%s", totalDPFeesStr, totalValFeesStr)
+
+		return nil
+	}
+}