diff --git a/node/test_utxo_empty_outputs_bug.py b/node/test_utxo_empty_outputs_bug.py
new file mode 100644
index 00000000..a4d7125d
--- /dev/null
+++ b/node/test_utxo_empty_outputs_bug.py
@@ -0,0 +1,118 @@
+#!/usr/bin/env python3
+# SPDX-License-Identifier: MIT
+"""
+Test case for UTXO Empty Outputs Bug in apply_transaction()
+Issue: #2819 - Red Team UTXO Implementation
+
+This test demonstrates a CRITICAL vulnerability where empty outputs
+result in complete fund destruction.
+"""
+
+import unittest
+import tempfile
+import os
+import sys
+import time
+
+sys.path.insert(0, '/tmp/Rustchain_utxo/node')
+
+from utxo_db import UtxoDB, UNIT
+
+
+class TestUTXOEmptyOutputsBug(unittest.TestCase):
+    """
+    CRITICAL: Empty outputs must be rejected to prevent fund destruction.
+
+    Bounty: #2819 - Red Team UTXO Implementation
+    Severity: CRITICAL (200 RTC)
+    Reporter: XiaZong (RTC0816b68b604630945c94cde35da4641a926aa4fd)
+
+    Vulnerability:
+    When outputs=[] and fee=0, the conservation check:
+        if inputs and (output_total + fee) > input_total:
+    becomes:
+        if inputs and (0 + 0) > input_total:
+    which evaluates to False, allowing the transaction to proceed.
+    Result: Inputs are spent, no outputs are created → funds destroyed.
+    """
+
+    def setUp(self):
+        self.tmp = tempfile.NamedTemporaryFile(suffix='.db', delete=False)
+        self.tmp.close()
+        self.db = UtxoDB(self.tmp.name)
+        self.db.init_tables()
+
+    def tearDown(self):
+        os.unlink(self.tmp.name)
+
+    def test_empty_outputs_rejected(self):
+        """
+        CRITICAL: Empty outputs must be rejected to prevent fund destruction.
+
+        Steps:
+        1. Create UTXO with 100 RTC
+        2. Try to spend with outputs=[]
+        3. Verify transaction is rejected
+        4. Verify balance is preserved
+        """
+        # Step 1: Create initial UTXO with 100 RTC
+        ok = self.db.apply_transaction({
+            'tx_type': 'mining_reward',
+            'inputs': [],
+            'outputs': [{'address': 'alice', 'value_nrtc': 100 * UNIT}],
+            'fee_nrtc': 0,
+            'timestamp': int(time.time()),
+        }, block_height=1)
+        self.assertTrue(ok, "Coinbase should succeed")
+
+        # Verify Alice has 100 RTC
+        alice_before = self.db.get_balance('alice')
+        self.assertEqual(alice_before, 100 * UNIT, "Alice should have 100 RTC")
+
+        # Get the UTXO
+        boxes = self.db.get_unspent_for_address('alice')
+        self.assertEqual(len(boxes), 1, "Alice should have 1 UTXO")
+        box_id = boxes[0]['box_id']
+
+        # Step 2: EXPLOIT - Try to spend with empty outputs
+        ok = self.db.apply_transaction({
+            'tx_type': 'transfer',
+            'inputs': [{'box_id': box_id, 'spending_proof': 'sig'}],
+            'outputs': [],  # EMPTY - This is the vulnerability!
+            'fee_nrtc': 0,
+            'timestamp': int(time.time()),
+        }, block_height=2)
+
+        # Step 3: Transaction MUST be rejected
+        self.assertFalse(ok,
+            "CRITICAL: Empty outputs should be rejected to prevent fund destruction!")
+
+        # Step 4: Balance must be preserved
+        alice_after = self.db.get_balance('alice')
+        self.assertEqual(alice_after, 100 * UNIT,
+            "Balance should not change if transaction is rejected")
+
+        # Verify no funds were destroyed
+        total_supply = self.db.get_balance('alice') + \
+                      self.db.get_balance('bob') + \
+                      self.db.get_balance('charlie')
+        self.assertEqual(total_supply, 100 * UNIT,
+            "Total supply should remain 100 RTC - no funds destroyed")
+
+
+if __name__ == '__main__':
+    suite = unittest.TestLoader().loadTestsFromTestCase(TestUTXOEmptyOutputsBug)
+    runner = unittest.TextTestRunner(verbosity=2)
+    result = runner.run(suite)
+
+    print("\n" + "=" * 70)
+    if result.failures:
+        print("⚠️  CRITICAL VULNERABILITY CONFIRMED!")
+        print("⚠️  Test FAILED - Empty outputs are accepted (BUG!)")
+        print("=" * 70)
+        print("\nThis means funds can be destroyed via empty outputs.")
+        print("Conservation law is bypassed.")
+        print("\nFix: Add 'if not outputs: return False' in apply_transaction()")
+    else:
+        print("✅ Test PASSED - Empty outputs are rejected (FIXED)")
+        print("=" * 70)
diff --git a/node/test_utxo_mempool_bug.py b/node/test_utxo_mempool_bug.py
new file mode 100644
index 00000000..3a10b527
--- /dev/null
+++ b/node/test_utxo_mempool_bug.py
@@ -0,0 +1,98 @@
+#!/usr/bin/env python3
+# SPDX-License-Identifier: MIT
+"""
+Test case for UTXO Mempool Empty Outputs Bug
+Issue: #2819 - Red Team UTXO Implementation
+
+This test demonstrates that mempool_add() also accepts empty outputs.
+"""
+
+import unittest
+import tempfile
+import os
+import sys
+import time
+
+sys.path.insert(0, '/tmp/Rustchain_utxo/node')
+
+from utxo_db import UtxoDB, UNIT
+
+
+class TestUTXOMempoolEmptyOutputsBug(unittest.TestCase):
+    """
+    MEDIUM: mempool_add() accepts empty outputs,    Bounty: #2819 - Red Team UTXO Implementation
+    Severity: MEDIUM (50 RTC)
+    Reporter: XiaZong (RTC0816b68b604630945c94cde35da4641a926aa4fd)
+    """
+
+    def setUp(self):
+        self.tmp = tempfile.NamedTemporaryFile(suffix='.db', delete=False)
+        self.tmp.close()
+        self.db = UtxoDB(self.tmp.name)
+        self.db.init_tables()
+
+    def tearDown(self):
+        os.unlink(self.tmp.name)
+
+    def test_mempool_empty_outputs_rejected(self):
+        """
+        MEDIUM: mempool should reject empty outputs.
+        Steps:
+        1. Create UTXO with 100 RTC
+        2. Try to add tx with outputs=[] to mempool
+        3. Verify transaction is rejected
+        4. Verify mempool is empty
+        """
+        # Step 1: Create initial UTXO with 100 RTC
+        ok = self.db.apply_transaction({
+            'tx_type': 'mining_reward',
+            'inputs': [],
+            'outputs': [{'address': 'alice', 'value_nrtc': 100 * UNIT}],
+            'fee_nrtc': 0,
+            'timestamp': int(time.time()),
+        }, block_height=1)
+        self.assertTrue(ok, "Coinbase should succeed")
+
+        # Verify Alice has 100 RTC
+        alice_before = self.db.get_balance('alice')
+        self.assertEqual(alice_before, 100 * UNIT)
+
+        # Get the UTXO
+        boxes = self.db.get_unspent_for_address('alice')
+        self.assertEqual(len(boxes), 1)
+        box_id = boxes[0]['box_id']
+
+        # Step 2: EXPLOIT - Try to add tx with empty outputs to mempool
+        ok = self.db.mempool_add({
+            'tx_id': 'malicious_tx_001',
+            'tx_type': 'transfer',
+            'inputs': [{'box_id': box_id, 'spending_proof': 'sig'}],
+            'outputs': [],  # EMPTY - This should be rejected!
+            'fee_nrtc': 0,
+        })
+
+        # Step 3: Transaction MUST be rejected
+        self.assertFalse(ok,
+            "MEDIUM: Empty outputs should be rejected from mempool!")
+
+        # Step 4: Verify mempool is empty
+        candidates = self.db.mempool_get_block_candidates()
+        self.assertEqual(len(candidates), 0,
+            "Mempool should be empty if transaction is rejected")
+
+
+if __name__ == '__main__':
+    suite = unittest.TestLoader().loadTestsFromTestCase(TestUTXOMempoolEmptyOutputsBug)
+    runner = unittest.TextTestRunner(verbosity=2)
+    result = runner.run(suite)
+
+    print("\n" + "=" * 70)
+    if result.failures:
+        print("⚠️  VULNERABILITY CONFIRMED!")
+        print("⚠️  Test FAILED - Empty outputs accepted by mempool (BUG!)")
+        print("=" * 70)
+        print("\nThis allows DoS via mempool flooding.")
+        print("\nFix: Add empty outputs check in mempool_add()")
+    else:
+        print("✅ Test PASSED - Empty outputs rejected from mempool (FIXED)")
+        print("=" * 70)
diff --git a/node/utxo_db.py b/node/utxo_db.py
index 1e960b66..1dd1046d 100644
--- a/node/utxo_db.py
+++ b/node/utxo_db.py
@@ -388,6 +388,14 @@ def apply_transaction(self, tx: dict, block_height: int,
                 conn.execute("ROLLBACK")
                 return False
 
+            # CRITICAL FIX: Reject empty outputs to prevent fund destruction
+            # Without this check, outputs=[] bypasses conservation law:
+            # output_total=0, fee=0 → (0+0) > input_total → False (bypassed)
+            # Result: inputs spent, no outputs created → funds destroyed
+            if not outputs and tx_type not in MINTING_TX_TYPES:
+                conn.execute("ROLLBACK")
+                return False
+
             output_total = sum(o['value_nrtc'] for o in outputs)
 
             # Every output must carry a strictly positive value.
@@ -661,6 +669,12 @@ def mempool_add(self, tx: dict) -> bool:
                 conn.execute("ROLLBACK")
                 return False
 
+            # MEDIUM FIX: Reject empty outputs to prevent DoS
+            outputs = tx.get('outputs', [])
+            if not outputs and tx_type not in MINTING_TX_TYPES:
+                conn.execute("ROLLBACK")
+                return False
+
             input_total = 0
             for inp in inputs:
                 row = conn.execute(