I see the file is uploaded in /public/system/media_attachments as well

but the UI is stuck in processing

Its definitely not to do with size as I upload large png, it works, but GIFs and Video is not working

Try #MastoAdmin on Mastodon from an alternate account

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https://preview.redd.it/rdelamuc8x1c1.png?width=964&format=png&auto=webp&s=2d77b7533bc65960fe64b9cedbdecd1e69e06cae

This is the output for RAILS_ENV=production bundle exec rails c

Please check the permissions of the folder.
I had a similar issue with my Mastodon docker instance.

Owner should be the id 991 for both group and user.

Any help #MastoAdmin