diff --git a/modules/apps/transfer/keeper/relay.go b/modules/apps/transfer/keeper/relay.go
index b4496b753d2..63cf4f7bb18 100644
--- a/modules/apps/transfer/keeper/relay.go
+++ b/modules/apps/transfer/keeper/relay.go
@@ -369,6 +369,12 @@ func (k Keeper) refundPacketToken(ctx sdk.Context, packet channeltypes.Packet, d
 	if types.SenderChainIsSource(packet.GetSourcePort(), packet.GetSourceChannel(), data.Denom) {
 		// unescrow tokens back to sender
 		escrowAddress := types.GetEscrowAddress(packet.GetSourcePort(), packet.GetSourceChannel())
+
+		prefix := k.GetSlashPrefix(ctx)
+		if prefix != "" && strings.HasPrefix(token.Denom, prefix+":") {
+			token.Denom = strings.ReplaceAll(token.Denom, ":", "/")
+		}
+
 		if err := k.bankKeeper.SendCoins(ctx, escrowAddress, sender, sdk.NewCoins(token)); err != nil {
 			// NOTE: this error is only expected to occur given an unexpected bug or a malicious
 			// counterparty module. The bug may occur in bank or any part of the code that allows