Double-sided incentives are the best way to handle this (avoid abuse):
(To the referrer) X percent off for the next order if you refer a friend and they purchase something from our store
(To the referred customer) X percent off your order from our store
Limited time offer – must be used within two weeks
Unique link tracking helps prevent abuse, especially if you pair the link to a customer account. You will be able to spot unusual behavior. At the end of the day, if you offer 10% to each party, abuse doesn't matter if you're driving tons of traffic. You're still making a sale. Where you get in trouble is when you offeri a hard incentive like $20 in store credit.