diff --git a/migrations/add_referral_system.sql b/migrations/add_referral_system.sql
index 9f67d3c..8f1d03d 100644
--- a/migrations/add_referral_system.sql
+++ b/migrations/add_referral_system.sql
@@ -1,47 +1,25 @@
--- Migration: Referral system (Issue #2)
--- Idempotent
-
+-- Migration: Add Referral System
 CREATE TABLE IF NOT EXISTS referral_codes (
-  id UUID PRIMARY KEY DEFAULT gen_random_uuid(),
-  code TEXT UNIQUE NOT NULL DEFAULT substring(gen_random_uuid()::text, 1, 8),
+  code TEXT PRIMARY KEY,
   owner_id TEXT NOT NULL,
-  uses INT DEFAULT 0,
-  credits_awarded INT DEFAULT 0,
-  created_at TIMESTAMPTZ DEFAULT NOW()
+  uses INTEGER NOT NULL DEFAULT 0,
+  credits_awarded INTEGER NOT NULL DEFAULT 0,
+  created_at TIMESTAMP WITH TIME ZONE DEFAULT CURRENT_TIMESTAMP
 );
 
 CREATE TABLE IF NOT EXISTS referral_conversions (
-  id UUID PRIMARY KEY DEFAULT gen_random_uuid(),
+  id TEXT PRIMARY KEY,
   referral_code TEXT NOT NULL REFERENCES referral_codes(code),
-  new_user_id TEXT NOT NULL,
-  converted_at TIMESTAMPTZ DEFAULT NOW(),
-  UNIQUE(referral_code, new_user_id)
+  referrer_id TEXT NOT NULL,
+  referred_user_id TEXT NOT NULL UNIQUE,
+  credits_granted INTEGER NOT NULL DEFAULT 5,
+  converted_at TIMESTAMP WITH TIME ZONE DEFAULT CURRENT_TIMESTAMP
 );
 
-CREATE OR REPLACE FUNCTION process_referral(p_code TEXT, p_new_user_id TEXT)
-RETURNS JSONB AS $$
-DECLARE
-  v_owner_id TEXT;
-  v_credits INT := 5;
-BEGIN
-  -- Idempotency check
-  IF EXISTS (SELECT 1 FROM referral_conversions WHERE referral_code = p_code AND new_user_id = p_new_user_id) THEN
-    RETURN jsonb_build_object('status', 'already_processed');
-  END IF;
-
-  SELECT owner_id INTO v_owner_id FROM referral_codes WHERE code = p_code;
-  IF NOT FOUND THEN RETURN jsonb_build_object('status', 'invalid_code'); END IF;
-
-  -- Log conversion
-  INSERT INTO referral_conversions (referral_code, new_user_id) VALUES (p_code, p_new_user_id);
-
-  -- Award credits
-  UPDATE referral_codes SET uses = uses + 1, credits_awarded = credits_awarded + v_credits WHERE code = p_code;
-
-  -- Log event
-  INSERT INTO system_events (event_type, payload, created_at)
-  VALUES ('referral_conversion', jsonb_build_object('code', p_code, 'new_user', p_new_user_id, 'credits', v_credits), NOW());
-
-  RETURN jsonb_build_object('status', 'ok', 'credits_awarded', v_credits, 'owner_id', v_owner_id);
-END;
-$$ LANGUAGE plpgsql;
+CREATE TABLE IF NOT EXISTS system_events (
+  id TEXT PRIMARY KEY,
+  event_type TEXT NOT NULL,
+  user_id TEXT NOT NULL,
+  metadata JSONB NOT NULL,
+  created_at TIMESTAMP WITH TIME ZONE DEFAULT CURRENT_TIMESTAMP
+);
diff --git a/src/growth/referral.ts b/src/growth/referral.ts
new file mode 100644
index 0000000..c903df6
--- /dev/null
+++ b/src/growth/referral.ts
@@ -0,0 +1,123 @@
+export interface ReferralCode {
+  code: string;
+  ownerId: string;
+  uses: number;
+  creditsAwarded: number;
+  createdAt: string;
+}
+
+export interface ReferralConversion {
+  id: string;
+  referralCode: string;
+  referrerId: string;
+  referredUserId: string;
+  creditsGranted: number;
+  convertedAt: string;
+}
+
+export interface SystemEvent {
+  id: string;
+  eventType: string;
+  userId: string;
+  metadata: Record<string, unknown>;
+  createdAt: string;
+}
+
+export interface ReferralResult {
+  success: boolean;
+  creditsAwarded?: number;
+  referrerId?: string;
+  referredUserId?: string;
+  error?: string;
+}
+
+export class ReferralEngine {
+  private codes = new Map<string, ReferralCode>();
+  private conversions = new Map<string, ReferralConversion>(); // Keyed by referredUserId
+  private userCredits = new Map<string, number>();
+  private systemEvents: SystemEvent[] = [];
+
+  public createReferralCode(ownerId: string, customCode?: string): ReferralCode {
+    const code = customCode || `ref_${ownerId.slice(0, 6)}_${Math.random().toString(36).slice(2, 6)}`;
+    const record: ReferralCode = {
+      code,
+      ownerId,
+      uses: 0,
+      creditsAwarded: 0,
+      createdAt: new Date().toISOString(),
+    };
+    this.codes.set(code, record);
+    return record;
+  }
+
+  public getUserCredits(userId: string): number {
+    return this.userCredits.get(userId) || 0;
+  }
+
+  public addCredits(userId: string, amount: number): void {
+    const current = this.getUserCredits(userId);
+    this.userCredits.set(userId, current + amount);
+  }
+
+  public getEvents(): SystemEvent[] {
+    return [...this.systemEvents];
+  }
+
+  public processReferral(referralCode: string, newUserId: string): ReferralResult {
+    const codeRecord = this.codes.get(referralCode);
+    if (!codeRecord) {
+      return { success: false, error: 'invalid_referral_code' };
+    }
+
+    if (codeRecord.ownerId === newUserId) {
+      return { success: false, error: 'self_referral_forbidden' };
+    }
+
+    if (this.conversions.has(newUserId)) {
+      return { success: false, error: 'referral_already_claimed' };
+    }
+
+    const creditsAwarded = 5;
+    const now = new Date().toISOString();
+
+    // 1. Record conversion
+    const conversion: ReferralConversion = {
+      id: `cnv_${Date.now()}_${Math.random().toString(36).slice(2, 6)}`,
+      referralCode,
+      referrerId: codeRecord.ownerId,
+      referredUserId: newUserId,
+      creditsGranted: creditsAwarded,
+      convertedAt: now,
+    };
+    this.conversions.set(newUserId, conversion);
+
+    // 2. Update referral code metrics
+    codeRecord.uses += 1;
+    codeRecord.creditsAwarded += creditsAwarded;
+
+    // 3. Award credits to referrer
+    this.addCredits(codeRecord.ownerId, creditsAwarded);
+
+    // 4. Log system event
+    this.systemEvents.push({
+      id: `evt_${Date.now()}_${Math.random().toString(36).slice(2, 6)}`,
+      eventType: 'referral_conversion',
+      userId: codeRecord.ownerId,
+      metadata: {
+        referredUserId: newUserId,
+        referralCode,
+        creditsGranted: creditsAwarded,
+      },
+      createdAt: now,
+    });
+
+    return {
+      success: true,
+      creditsAwarded,
+      referrerId: codeRecord.ownerId,
+      referredUserId: newUserId,
+    };
+  }
+}
+
+export const defaultReferralEngine = new ReferralEngine();
diff --git a/tests/referral.test.ts b/tests/referral.test.ts
new file mode 100644
index 0000000..7f8c712
--- /dev/null
+++ b/tests/referral.test.ts
@@ -0,0 +1,62 @@
+import { assertEquals } from 'https://deno.land/std@0.224.0/assert/mod.ts';
+import { ReferralEngine } from '../src/growth/referral.ts';
+
+Deno.test('Referral Happy Path: awards 5 credits to referrer and logs system event', () => {
+  const engine = new ReferralEngine();
+  const code = engine.createReferralCode('user_alice', 'REF_ALICE');
+
+  assertEquals(code.code, 'REF_ALICE');
+  assertEquals(engine.getUserCredits('user_alice'), 0);
+
+  const result = engine.processReferral('REF_ALICE', 'user_bob');
+  assertEquals(result.success, true);
+  assertEquals(result.creditsAwarded, 5);
+  assertEquals(result.referrerId, 'user_alice');
+  assertEquals(result.referredUserId, 'user_bob');
+
+  // Verify credit balance
+  assertEquals(engine.getUserCredits('user_alice'), 5);
+
+  // Verify system event logged
+  const events = engine.getEvents();
+  assertEquals(events.length, 1);
+  assertEquals(events[0].eventType, 'referral_conversion');
+  assertEquals(events[0].userId, 'user_alice');
+  assertEquals(events[0].metadata.referredUserId, 'user_bob');
+});
+
+Deno.test('Referral Idempotency: prevents duplicate claim by same referred user', () => {
+  const engine = new ReferralEngine();
+  engine.createReferralCode('user_alice', 'REF_ALICE');
+
+  // First claim succeeds
+  const first = engine.processReferral('REF_ALICE', 'user_bob');
+  assertEquals(first.success, true);
+  assertEquals(engine.getUserCredits('user_alice'), 5);
+
+  // Second claim fails idempotently
+  const second = engine.processReferral('REF_ALICE', 'user_bob');
+  assertEquals(second.success, false);
+  assertEquals(second.error, 'referral_already_claimed');
+
+  // Credits are NOT doubled
+  assertEquals(engine.getUserCredits('user_alice'), 5);
+  assertEquals(engine.getEvents().length, 1);
+});
+
+Deno.test('Referral Self-Referral Prevention: rejects user referring themselves', () => {
+  const engine = new ReferralEngine();
+  engine.createReferralCode('user_alice', 'REF_ALICE');
+
+  const result = engine.processReferral('REF_ALICE', 'user_alice');
+  assertEquals(result.success, false);
+  assertEquals(result.error, 'self_referral_forbidden');
+  assertEquals(engine.getUserCredits('user_alice'), 0);
+});
+
+Deno.test('Referral Invalid Code: rejects non-existent referral code', () => {
+  const engine = new ReferralEngine();
+  const result = engine.processReferral('NON_EXISTENT_CODE', 'user_bob');
+  assertEquals(result.success, false);
+  assertEquals(result.error, 'invalid_referral_code');
+});