diff --git a/Cargo.toml b/Cargo.toml
new file mode 100644
index 00000000..1fe5345b
--- /dev/null
+++ b/Cargo.toml
@@ -0,0 +1,18 @@
+[package]
+name = "koii-token-generator"
+version = "0.1.0"
+edition = "2021"
+
+[lib]
+name = "token_generator"
+path = "src/lib/token_generator.rs"
+
+[dependencies]
+anchor-lang = "0.28.0"
+anchor-spl = "0.28.0"
+solana-program = "1.16.0"
+
+[dev-dependencies]
+solana-program-test = "1.16.0"
+solana-sdk = "1.16.0"
+tokio = { version = "1", features = ["full"] }
\ No newline at end of file
diff --git a/src/lib/token_generator.rs b/src/lib/token_generator.rs
new file mode 100644
index 00000000..4e8bf2c4
--- /dev/null
+++ b/src/lib/token_generator.rs
@@ -0,0 +1,92 @@
+use anchor_lang::prelude::*;
+use anchor_spl::token::{self, Token, TokenAccount, Mint};
+
+// Custom error type for token generation contract
+#[derive(Debug)]
+pub enum TokenGeneratorError {
+    InvalidTokenDump,
+    InsufficientTokens,
+    DuplicateClaim,
+}
+
+// Define the token generation program
+#[program]
+pub mod token_generator {
+    use super::*;
+
+    /// Initialize the token generation program
+    pub fn initialize(ctx: Context<Initialize>) -> Result<()> {
+        // Initial setup logic
+        Ok(())
+    }
+
+    /// Detect token dumping and generate new tokens
+    pub fn detect_token_dump(
+        ctx: Context<DetectTokenDump>, 
+        dump_amount: u64
+    ) -> Result<()> {
+        // Validate token dumping criteria
+        if dump_amount == 0 {
+            return Err(TokenGeneratorError::InvalidTokenDump.into());
+        }
+
+        // Logic to verify and record token dump
+        // Calculate generated tokens based on dump amount
+        let generated_tokens = calculate_generated_tokens(dump_amount);
+
+        // Mint new tokens
+        token::mint_to(
+            ctx.accounts.into_mint_context(), 
+            generated_tokens
+        )?;
+
+        Ok(())
+    }
+
+    /// Allow users to claim generated tokens
+    pub fn claim_tokens(ctx: Context<ClaimTokens>, amount: u64) -> Result<()> {
+        // Validate claim eligibility
+        // Transfer tokens to user's account
+        Ok(())
+    }
+}
+
+/// Context for initializing the program
+#[derive(Accounts)]
+pub struct Initialize<'info> {
+    #[account(mut)]
+    pub authority: Signer<'info>,
+    pub token_mint: Account<'info, Mint>,
+    pub system_program: Program<'info, System>,
+}
+
+/// Context for detecting token dumps
+#[derive(Accounts)]
+pub struct DetectTokenDump<'info> {
+    #[account(mut)]
+    pub dumper: Signer<'info>,
+    #[account(mut)]
+    pub token_account: Account<'info, TokenAccount>,
+    pub token_mint: Account<'info, Mint>,
+    pub token_program: Program<'info, Token>,
+}
+
+/// Context for claiming tokens
+#[derive(Accounts)]
+pub struct ClaimTokens<'info> {
+    #[account(mut)]
+    pub claimer: Signer<'info>,
+    #[account(mut)]
+    pub token_account: Account<'info, TokenAccount>,
+}
+
+/// Calculate generated tokens based on dump amount
+fn calculate_generated_tokens(dump_amount: u64) -> u64 {
+    // Implement token generation logic
+    // Example: Linear scaling with a cap
+    let generation_rate = 0.1; // 10% of dumped tokens
+    let max_generated_tokens = 1_000_000; // Prevent excessive token generation
+    
+    let generated = (dump_amount as f64 * generation_rate).floor() as u64;
+    generated.min(max_generated_tokens)
+}
\ No newline at end of file
diff --git a/tests/token_generator.test.rs b/tests/token_generator.test.rs
new file mode 100644
index 00000000..4ca67674
--- /dev/null
+++ b/tests/token_generator.test.rs
@@ -0,0 +1,32 @@
+use solana_program::pubkey::Pubkey;
+use solana_program_test::*;
+use solana_sdk::{
+    signature::{Keypair, Signer},
+    transaction::Transaction,
+};
+
+use token_generator::calculate_generated_tokens;
+
+#[tokio::test]
+async fn test_token_generation_calculation() {
+    // Test token generation with various input amounts
+    assert_eq!(calculate_generated_tokens(1000), 100);
+    assert_eq!(calculate_generated_tokens(10_000), 1000);
+    assert_eq!(calculate_generated_tokens(2_000_000), 1_000_000); // Max cap test
+}
+
+#[tokio::test]
+async fn test_zero_token_dump() {
+    // Ensure zero token dump returns zero generated tokens
+    assert_eq!(calculate_generated_tokens(0), 0);
+}
+
+#[tokio::test]
+async fn test_high_volume_token_generation() {
+    // Test high volume token generation with max cap
+    let high_dump_amount = 10_000_000;
+    assert_eq!(
+        calculate_generated_tokens(high_dump_amount), 
+        1_000_000 // Verify max cap is enforced
+    );
+}
\ No newline at end of file