diff --git a/src/growth/referral.ts b/src/growth/referral.ts
new file mode 100644
index 0000000..93a565b
--- /dev/null
+++ b/src/growth/referral.ts
@@ -0,0 +1,89 @@
+/**
+ * Referral Reward Loop — Issue #2
+ * Awards credits to referrers upon successful referral conversions
+ */
+
+export interface ReferralCode {
+  id: string;
+  code: string;
+  ownerId: string;
+  uses: number;
+  creditsAwarded: number;
+  createdAt: Date;
+}
+
+export interface ReferralConversionResult {
+  status: 'ok' | 'already_processed' | 'invalid_code';
+  creditsAwarded?: number;
+  ownerId?: string;
+}
+
+export interface MockDatabase {
+  referralCodes: Map<string, { ownerId: string; uses: number; creditsAwarded: number }>;
+  conversions: Set<string>;
+  systemEvents: Array<{ type: string; payload: Record<string, unknown>; timestamp: Date }>;
+}
+
+export function createMockDatabase(): MockDatabase {
+  return {
+    referralCodes: new Map(),
+    conversions: new Set(),
+    systemEvents: []
+  };
+}
+
+export function generateReferralCode(ownerId: string, customCode?: string, db?: MockDatabase): string {
+  const code = customCode || `ref_${ownerId.slice(0, 4)}_${Math.random().toString(36).substring(2, 6)}`;
+  if (db) {
+    db.referralCodes.set(code, { ownerId, uses: 0, creditsAwarded: 0 });
+  }
+  return code;
+}
+
+export function processReferral(
+  code: string,
+  newUserId: string,
+  db: MockDatabase,
+  creditsPerConversion = 5
+): ReferralConversionResult {
+  const conversionKey = `${code}:${newUserId}`;
+
+  // 1. Check idempotency
+  if (db.conversions.has(conversionKey)) {
+    return { status: 'already_processed' };
+  }
+
+  // 2. Validate referral code
+  const referralEntry = db.referralCodes.get(code);
+  if (!referralEntry) {
+    return { status: 'invalid_code' };
+  }
+
+  // 3. Prevent self-referral
+  if (referralEntry.ownerId === newUserId) {
+    return { status: 'already_processed' };
+  }
+
+  // 4. Record conversion
+  db.conversions.add(conversionKey);
+  referralEntry.uses += 1;
+  referralEntry.creditsAwarded += creditsPerConversion;
+
+  // 5. Emit system event
+  db.systemEvents.push({
+    type: 'referral_conversion',
+    payload: {
+      code,
+      newUserId,
+      ownerId: referralEntry.ownerId,
+      creditsAwarded: creditsPerConversion
+    },
+    timestamp: new Date()
+  });
+
+  return {
+    status: 'ok',
+    creditsAwarded: creditsPerConversion,
+    ownerId: referralEntry.ownerId
+  };
+}
diff --git a/tests/referral.test.ts b/tests/referral.test.ts
new file mode 100644
index 0000000..0a1bd8c
--- /dev/null
+++ b/tests/referral.test.ts
@@ -0,0 +1,39 @@
+import { assertEquals } from 'https://deno.land/std@0.224.0/assert/mod.ts';
+import {
+  createMockDatabase,
+  generateReferralCode,
+  processReferral
+} from '../src/growth/referral.ts';
+
+Deno.test('Referral: successful conversion awards 5 credits', () => {
+  const db = createMockDatabase();
+  const code = generateReferralCode('user_alice', 'ALICE2026', db);
+
+  const result = processReferral(code, 'user_bob', db);
+  assertEquals(result.status, 'ok');
+  assertEquals(result.creditsAwarded, 5);
+  assertEquals(result.ownerId, 'user_alice');
+
+  const referralData = db.referralCodes.get(code);
+  assertEquals(referralData?.uses, 1);
+  assertEquals(referralData?.creditsAwarded, 5);
+  assertEquals(db.systemEvents.length, 1);
+  assertEquals(db.systemEvents[0].type, 'referral_conversion');
+});
+
+Deno.test('Referral: prevents duplicate conversions (idempotency)', () => {
+  const db = createMockDatabase();
+  const code = generateReferralCode('user_alice', 'ALICE2026', db);
+
+  processReferral(code, 'user_bob', db);
+  const secondAttempt = processReferral(code, 'user_bob', db);
+
+  assertEquals(secondAttempt.status, 'already_processed');
+  assertEquals(db.referralCodes.get(code)?.uses, 1);
+});
+
+Deno.test('Referral: rejects invalid referral code', () => {
+  const db = createMockDatabase();
+  const result = processReferral('NON_EXISTENT_CODE', 'user_bob', db);
+  assertEquals(result.status, 'invalid_code');
+});