diff --git a/docs/ibc/proto-docs.md b/docs/ibc/proto-docs.md
index 052be9fff4e..e3b671025ff 100644
--- a/docs/ibc/proto-docs.md
+++ b/docs/ibc/proto-docs.md
@@ -1995,6 +1995,7 @@ parameter for the denomination to false.
 | ----- | ---- | ----- | ----------- |
 | `send_enabled` | [bool](#bool) |  | send_enabled enables or disables all cross-chain token transfers from this chain. |
 | `receive_enabled` | [bool](#bool) |  | receive_enabled enables or disables all cross-chain token transfers to this chain. |
+| `slash_prefix` | [string](#string) |  | In order to provide backward compatibility with IBC transfers to other IBCv3 chains, we can provide a prefix for denoms containing `/` so that they are escaped on send and receive with `:` |
 
 
 
diff --git a/modules/apps/transfer/client/cli/tx.go b/modules/apps/transfer/client/cli/tx.go
index 3759f3def40..45b4803bf47 100644
--- a/modules/apps/transfer/client/cli/tx.go
+++ b/modules/apps/transfer/client/cli/tx.go
@@ -53,7 +53,7 @@ corresponding to the counterparty channel. Any timeout set to 0 is disabled.`),
 				return err
 			}
 
-			if !strings.HasPrefix(coin.Denom, "ibc/") {
+			if !strings.HasPrefix(coin.Denom, "ibc/") && !strings.HasPrefix(coin.Denom, "factory/") {
 				denomTrace := types.ParseDenomTrace(coin.Denom)
 				coin.Denom = denomTrace.IBCDenom()
 			}
diff --git a/modules/apps/transfer/keeper/params.go b/modules/apps/transfer/keeper/params.go
index adce917ac22..5f13b2b1a9f 100644
--- a/modules/apps/transfer/keeper/params.go
+++ b/modules/apps/transfer/keeper/params.go
@@ -20,9 +20,16 @@ func (k Keeper) GetReceiveEnabled(ctx sdk.Context) bool {
 	return res
 }
 
+// GetSlashPrefix retrieves the slash prefix from the paramstore
+func (k Keeper) GetSlashPrefix(ctx sdk.Context) string {
+	var res string
+	k.paramSpace.Get(ctx, types.KeySlashPrefix, &res)
+	return res
+}
+
 // GetParams returns the total set of ibc-transfer parameters.
 func (k Keeper) GetParams(ctx sdk.Context) types.Params {
-	return types.NewParams(k.GetSendEnabled(ctx), k.GetReceiveEnabled(ctx))
+	return types.NewParams(k.GetSendEnabled(ctx), k.GetReceiveEnabled(ctx), k.GetSlashPrefix(ctx))
 }
 
 // SetParams sets the total set of ibc-transfer parameters.
diff --git a/modules/apps/transfer/keeper/relay.go b/modules/apps/transfer/keeper/relay.go
index 39410ad3e35..f8b49563df7 100644
--- a/modules/apps/transfer/keeper/relay.go
+++ b/modules/apps/transfer/keeper/relay.go
@@ -109,6 +109,11 @@ func (k Keeper) sendTransfer(
 		); err != nil {
 			return 0, err
 		}
+		prefix := k.GetSlashPrefix(ctx)
+		if prefix != "" && strings.HasPrefix(fullDenomPath, prefix+"/") {
+			fullDenomPath = strings.ReplaceAll(fullDenomPath, "/", ":")
+		}
+
 	} else {
 		labels = append(labels, telemetry.NewLabel(coretypes.LabelSource, "false"))
 
@@ -205,14 +210,20 @@ func (k Keeper) OnRecvPacket(ctx sdk.Context, packet channeltypes.Packet, data t
 		unprefixedDenom := data.Denom[len(voucherPrefix):]
 
 		// coin denomination used in sending from the escrow address
-		denom := unprefixedDenom
-
-		// The denomination used to send the coins is either the native denom or the hash of the path
-		// if the denomination is not native.
-		denomTrace := types.ParseDenomTrace(unprefixedDenom)
-		if denomTrace.Path != "" {
-			denom = denomTrace.IBCDenom()
+		var denom string
+		prefix := k.GetSlashPrefix(ctx)
+		if prefix != "" && strings.HasPrefix(unprefixedDenom, prefix+":") {
+			denom = strings.ReplaceAll(unprefixedDenom, ":", "/")
+		} else {
+			denom = unprefixedDenom
+			// The denomination used to send the coins is either the native denom or the hash of the path
+			// if the denomination is not native.
+			denomTrace := types.ParseDenomTrace(unprefixedDenom)
+			if denomTrace.Path != "" {
+				denom = denomTrace.IBCDenom()
+			}
 		}
+
 		token := sdk.NewCoin(denom, transferAmount)
 
 		if k.bankKeeper.BlockedAddr(receiver) {
diff --git a/modules/apps/transfer/simulation/genesis.go b/modules/apps/transfer/simulation/genesis.go
index ed0d3335450..f33bf5044f4 100644
--- a/modules/apps/transfer/simulation/genesis.go
+++ b/modules/apps/transfer/simulation/genesis.go
@@ -20,6 +20,10 @@ func RadomEnabled(r *rand.Rand) bool {
 	return r.Int63n(101) <= 75
 }
 
+func RandomPrefix(r *rand.Rand) string {
+	return simtypes.RandStringOfLength(r, 10)
+}
+
 // RandomizedGenState generates a random GenesisState for transfer.
 func RandomizedGenState(simState *module.SimulationState) {
 	var portID string
@@ -40,10 +44,16 @@ func RandomizedGenState(simState *module.SimulationState) {
 		func(r *rand.Rand) { receiveEnabled = RadomEnabled(r) },
 	)
 
+	var slashPrefix string
+	simState.AppParams.GetOrGenerate(
+		simState.Cdc, string(types.KeySlashPrefix), &slashPrefix, simState.Rand,
+		func(r *rand.Rand) { slashPrefix = RandomPrefix(r) },
+	)
+
 	transferGenesis := types.GenesisState{
 		PortId:      portID,
 		DenomTraces: types.Traces{},
-		Params:      types.NewParams(sendEnabled, receiveEnabled),
+		Params:      types.NewParams(sendEnabled, receiveEnabled, slashPrefix),
 	}
 
 	bz, err := json.MarshalIndent(&transferGenesis, "", " ")
diff --git a/modules/apps/transfer/types/params.go b/modules/apps/transfer/types/params.go
index 4ecdfab77e7..7a5001bc2e0 100644
--- a/modules/apps/transfer/types/params.go
+++ b/modules/apps/transfer/types/params.go
@@ -2,7 +2,9 @@ package types
 
 import (
 	"fmt"
+	"strings"
 
+	sdk "github.com/cosmos/cosmos-sdk/types"
 	paramtypes "github.com/cosmos/cosmos-sdk/x/params/types"
 )
 
@@ -11,6 +13,8 @@ const (
 	DefaultSendEnabled = true
 	// DefaultReceiveEnabled enabled
 	DefaultReceiveEnabled = true
+	// DefaultSlashPrefix factory
+	DefaultSlashPrefix = "factory"
 )
 
 var (
@@ -18,6 +22,8 @@ var (
 	KeySendEnabled = []byte("SendEnabled")
 	// KeyReceiveEnabled is store's key for ReceiveEnabled Params
 	KeyReceiveEnabled = []byte("ReceiveEnabled")
+	// KeySlashPrefix is store's key for SlashPrefix Params
+	KeySlashPrefix = []byte("SlashPrefix")
 )
 
 // ParamKeyTable type declaration for parameters
@@ -26,16 +32,17 @@ func ParamKeyTable() paramtypes.KeyTable {
 }
 
 // NewParams creates a new parameter configuration for the ibc transfer module
-func NewParams(enableSend, enableReceive bool) Params {
+func NewParams(enableSend, enableReceive bool, slashPrefix string) Params {
 	return Params{
 		SendEnabled:    enableSend,
 		ReceiveEnabled: enableReceive,
+		SlashPrefix:    slashPrefix,
 	}
 }
 
 // DefaultParams is the default parameter configuration for the ibc-transfer module
 func DefaultParams() Params {
-	return NewParams(DefaultSendEnabled, DefaultReceiveEnabled)
+	return NewParams(DefaultSendEnabled, DefaultReceiveEnabled, DefaultSlashPrefix)
 }
 
 // Validate all ibc-transfer module parameters
@@ -44,6 +51,10 @@ func (p Params) Validate() error {
 		return err
 	}
 
+	if err := validatePrefix(p.SlashPrefix); err != nil {
+		return err
+	}
+
 	return validateEnabled(p.ReceiveEnabled)
 }
 
@@ -52,6 +63,7 @@ func (p *Params) ParamSetPairs() paramtypes.ParamSetPairs {
 	return paramtypes.ParamSetPairs{
 		paramtypes.NewParamSetPair(KeySendEnabled, p.SendEnabled, validateEnabled),
 		paramtypes.NewParamSetPair(KeyReceiveEnabled, p.ReceiveEnabled, validateEnabled),
+		paramtypes.NewParamSetPair(KeySlashPrefix, p.SlashPrefix, validatePrefix),
 	}
 }
 
@@ -63,3 +75,21 @@ func validateEnabled(i interface{}) error {
 
 	return nil
 }
+
+func validatePrefix(i interface{}) error {
+	p, ok := i.(string)
+	if !ok {
+		return fmt.Errorf("invalid parameter type: %T", i)
+	}
+
+	err := sdk.ValidateDenom(p)
+	if err != nil {
+		return err
+	}
+
+	if strings.Contains(p, "/") {
+		return fmt.Errorf("invalid parameter type: %T", i)
+	}
+
+	return nil
+}
diff --git a/modules/apps/transfer/types/params_test.go b/modules/apps/transfer/types/params_test.go
index 825efb825c1..a1d2e5bdb96 100644
--- a/modules/apps/transfer/types/params_test.go
+++ b/modules/apps/transfer/types/params_test.go
@@ -8,5 +8,6 @@ import (
 
 func TestValidateParams(t *testing.T) {
 	require.NoError(t, DefaultParams().Validate())
-	require.NoError(t, NewParams(true, false).Validate())
+	require.NoError(t, NewParams(true, false, "factory").Validate())
+	require.Error(t, NewParams(true, false, "factory/").Validate())
 }
diff --git a/modules/apps/transfer/types/transfer.pb.go b/modules/apps/transfer/types/transfer.pb.go
index 3dd58b18dbc..4772cc25b02 100644
--- a/modules/apps/transfer/types/transfer.pb.go
+++ b/modules/apps/transfer/types/transfer.pb.go
@@ -91,6 +91,10 @@ type Params struct {
 	// receive_enabled enables or disables all cross-chain token transfers to this
 	// chain.
 	ReceiveEnabled bool `protobuf:"varint,2,opt,name=receive_enabled,json=receiveEnabled,proto3" json:"receive_enabled,omitempty" yaml:"receive_enabled"`
+	// In order to provide backward compatibility with IBC transfers to other
+	// IBCv3 chains, we can provide a prefix for denoms containing `/` so that they
+	// are escaped on send and receive with `:`
+	SlashPrefix string `protobuf:"bytes,3,opt,name=slash_prefix,json=slashPrefix,proto3" json:"slash_prefix,omitempty" yaml:"slash_prefix"`
 }
 
 func (m *Params) Reset()         { *m = Params{} }
@@ -140,6 +144,13 @@ func (m *Params) GetReceiveEnabled() bool {
 	return false
 }
 
+func (m *Params) GetSlashPrefix() string {
+	if m != nil {
+		return m.SlashPrefix
+	}
+	return ""
+}
+
 func init() {
 	proto.RegisterType((*DenomTrace)(nil), "ibc.applications.transfer.v1.DenomTrace")
 	proto.RegisterType((*Params)(nil), "ibc.applications.transfer.v1.Params")
@@ -150,26 +161,28 @@ func init() {
 }
 
 var fileDescriptor_5041673e96e97901 = []byte{
-	// 300 bytes of a gzipped FileDescriptorProto
-	0x1f, 0x8b, 0x08, 0x00, 0x00, 0x00, 0x00, 0x00, 0x02, 0xff, 0x5c, 0x90, 0xc1, 0x4a, 0x2b, 0x31,
-	0x14, 0x86, 0x9b, 0x72, 0x29, 0xb7, 0x51, 0x14, 0xa2, 0x68, 0x29, 0x9a, 0xca, 0xac, 0x04, 0x71,
-	0x42, 0x11, 0x14, 0xba, 0x11, 0xaa, 0xee, 0xb5, 0xb8, 0x72, 0x53, 0x92, 0xcc, 0x71, 0x1a, 0x98,
-	0x4c, 0x86, 0x24, 0x1d, 0xe8, 0x23, 0xb8, 0xf3, 0xb1, 0x5c, 0x76, 0xe9, 0xaa, 0x48, 0xfb, 0x06,
-	0x7d, 0x02, 0x99, 0xb4, 0x94, 0xc1, 0xdd, 0x7f, 0xce, 0xf9, 0xbe, 0xb3, 0xf8, 0xf1, 0x95, 0x12,
-	0x92, 0xf1, 0xa2, 0xc8, 0x94, 0xe4, 0x5e, 0x99, 0xdc, 0x31, 0x6f, 0x79, 0xee, 0xde, 0xc1, 0xb2,
-	0xb2, 0xbf, 0xcb, 0x71, 0x61, 0x8d, 0x37, 0xe4, 0x4c, 0x09, 0x19, 0xd7, 0xe1, 0x78, 0x07, 0x94,
-	0xfd, 0xee, 0x71, 0x6a, 0x52, 0x13, 0x40, 0x56, 0xa5, 0x8d, 0x13, 0xdd, 0x63, 0xfc, 0x08, 0xb9,
-	0xd1, 0xaf, 0x96, 0x4b, 0x20, 0x04, 0xff, 0x2b, 0xb8, 0x9f, 0x74, 0xd0, 0x05, 0xba, 0x6c, 0x8f,
-	0x42, 0x26, 0xe7, 0x18, 0x0b, 0xee, 0x60, 0x9c, 0x54, 0x58, 0xa7, 0x19, 0x2e, 0xed, 0x6a, 0x13,
-	0xbc, 0xe8, 0x03, 0xe1, 0xd6, 0x33, 0xb7, 0x5c, 0x3b, 0x32, 0xc0, 0xfb, 0x0e, 0xf2, 0x64, 0x0c,
-	0x39, 0x17, 0x19, 0x24, 0xe1, 0xcb, 0xff, 0xe1, 0xe9, 0x7a, 0xd1, 0x3b, 0x9a, 0x71, 0x9d, 0x0d,
-	0xa2, 0xfa, 0x35, 0x1a, 0xed, 0x55, 0xe3, 0xd3, 0x66, 0x22, 0x0f, 0xf8, 0xd0, 0x82, 0x04, 0x55,
-	0xc2, 0x4e, 0x6f, 0x06, 0xbd, 0xbb, 0x5e, 0xf4, 0x4e, 0x36, 0xfa, 0x1f, 0x20, 0x1a, 0x1d, 0x6c,
-	0x37, 0xdb, 0x27, 0xc3, 0x97, 0xaf, 0x25, 0x45, 0xf3, 0x25, 0x45, 0x3f, 0x4b, 0x8a, 0x3e, 0x57,
-	0xb4, 0x31, 0x5f, 0xd1, 0xc6, 0xf7, 0x8a, 0x36, 0xde, 0xee, 0x52, 0xe5, 0x27, 0x53, 0x11, 0x4b,
-	0xa3, 0x99, 0x34, 0x4e, 0x1b, 0xc7, 0x94, 0x90, 0xd7, 0xa9, 0x61, 0xe5, 0x2d, 0xd3, 0x26, 0x99,
-	0x66, 0xe0, 0xaa, 0x9e, 0x6b, 0xfd, 0xfa, 0x59, 0x01, 0x4e, 0xb4, 0x42, 0x4d, 0x37, 0xbf, 0x01,
-	0x00, 0x00, 0xff, 0xff, 0x0e, 0x9e, 0x30, 0x60, 0x89, 0x01, 0x00, 0x00,
+	// 323 bytes of a gzipped FileDescriptorProto
+	0x1f, 0x8b, 0x08, 0x00, 0x00, 0x00, 0x00, 0x00, 0x02, 0xff, 0x5c, 0x51, 0xc1, 0x4a, 0xc3, 0x40,
+	0x14, 0x6c, 0xaa, 0x14, 0xbb, 0x8a, 0x42, 0x14, 0x2d, 0x45, 0x53, 0xc9, 0x49, 0x10, 0xb3, 0x14,
+	0x41, 0xa1, 0x17, 0xa1, 0xea, 0xbd, 0x16, 0x4f, 0x5e, 0xca, 0xee, 0xe6, 0x35, 0x5d, 0x48, 0xb2,
+	0xcb, 0xee, 0x36, 0xd8, 0xbf, 0xf0, 0xa7, 0x04, 0x8f, 0x3d, 0x7a, 0x2a, 0xd2, 0xfe, 0x41, 0xbf,
+	0x40, 0x76, 0xab, 0x21, 0x7a, 0x9b, 0x79, 0x33, 0xf3, 0x18, 0xde, 0x43, 0x97, 0x9c, 0x32, 0x4c,
+	0xa4, 0x4c, 0x39, 0x23, 0x86, 0x8b, 0x5c, 0x63, 0xa3, 0x48, 0xae, 0xc7, 0xa0, 0x70, 0xd1, 0x2d,
+	0x71, 0x24, 0x95, 0x30, 0xc2, 0x3f, 0xe5, 0x94, 0x45, 0x55, 0x73, 0x54, 0x1a, 0x8a, 0x6e, 0xfb,
+	0x28, 0x11, 0x89, 0x70, 0x46, 0x6c, 0xd1, 0x26, 0x13, 0xde, 0x21, 0xf4, 0x00, 0xb9, 0xc8, 0x9e,
+	0x15, 0x61, 0xe0, 0xfb, 0x68, 0x5b, 0x12, 0x33, 0x69, 0x79, 0xe7, 0xde, 0x45, 0x73, 0xe8, 0xb0,
+	0x7f, 0x86, 0x10, 0x25, 0x1a, 0x46, 0xb1, 0xb5, 0xb5, 0xea, 0x4e, 0x69, 0xda, 0x89, 0xcb, 0x85,
+	0xef, 0x1e, 0x6a, 0x0c, 0x88, 0x22, 0x99, 0xf6, 0x7b, 0x68, 0x4f, 0x43, 0x1e, 0x8f, 0x20, 0x27,
+	0x34, 0x85, 0xd8, 0x6d, 0xd9, 0xe9, 0x9f, 0xac, 0x17, 0x9d, 0xc3, 0x19, 0xc9, 0xd2, 0x5e, 0x58,
+	0x55, 0xc3, 0xe1, 0xae, 0xa5, 0x8f, 0x1b, 0xe6, 0xdf, 0xa3, 0x03, 0x05, 0x0c, 0x78, 0x01, 0x65,
+	0xbc, 0xee, 0xe2, 0xed, 0xf5, 0xa2, 0x73, 0xbc, 0x89, 0xff, 0x33, 0x84, 0xc3, 0xfd, 0x9f, 0xc9,
+	0xef, 0x12, 0x5b, 0x20, 0x25, 0x7a, 0x32, 0x92, 0x0a, 0xc6, 0xfc, 0xb5, 0xb5, 0x65, 0xcb, 0xfe,
+	0x29, 0x50, 0x51, 0x6d, 0x01, 0x4b, 0x07, 0x8e, 0xf5, 0x9f, 0x3e, 0x96, 0x81, 0x37, 0x5f, 0x06,
+	0xde, 0xd7, 0x32, 0xf0, 0xde, 0x56, 0x41, 0x6d, 0xbe, 0x0a, 0x6a, 0x9f, 0xab, 0xa0, 0xf6, 0x72,
+	0x9b, 0x70, 0x33, 0x99, 0xd2, 0x88, 0x89, 0x0c, 0x33, 0xa1, 0x33, 0xa1, 0x31, 0xa7, 0xec, 0x2a,
+	0x11, 0xb8, 0xb8, 0xc1, 0x99, 0x88, 0xa7, 0x29, 0x68, 0xfb, 0xa3, 0xca, 0x6f, 0xcc, 0x4c, 0x82,
+	0xa6, 0x0d, 0x77, 0xe2, 0xeb, 0xef, 0x00, 0x00, 0x00, 0xff, 0xff, 0x5c, 0xbd, 0xe8, 0xcc, 0xc5,
+	0x01, 0x00, 0x00,
 }
 
 func (m *DenomTrace) Marshal() (dAtA []byte, err error) {
@@ -229,6 +242,13 @@ func (m *Params) MarshalToSizedBuffer(dAtA []byte) (int, error) {
 	_ = i
 	var l int
 	_ = l
+	if len(m.SlashPrefix) > 0 {
+		i -= len(m.SlashPrefix)
+		copy(dAtA[i:], m.SlashPrefix)
+		i = encodeVarintTransfer(dAtA, i, uint64(len(m.SlashPrefix)))
+		i--
+		dAtA[i] = 0x1a
+	}
 	if m.ReceiveEnabled {
 		i--
 		if m.ReceiveEnabled {
@@ -292,6 +312,10 @@ func (m *Params) Size() (n int) {
 	if m.ReceiveEnabled {
 		n += 2
 	}
+	l = len(m.SlashPrefix)
+	if l > 0 {
+		n += 1 + l + sovTransfer(uint64(l))
+	}
 	return n
 }
 
@@ -484,6 +508,38 @@ func (m *Params) Unmarshal(dAtA []byte) error {
 				}
 			}
 			m.ReceiveEnabled = bool(v != 0)
+		case 3:
+			if wireType != 2 {
+				return fmt.Errorf("proto: wrong wireType = %d for field SlashPrefix", wireType)
+			}
+			var stringLen uint64
+			for shift := uint(0); ; shift += 7 {
+				if shift >= 64 {
+					return ErrIntOverflowTransfer
+				}
+				if iNdEx >= l {
+					return io.ErrUnexpectedEOF
+				}
+				b := dAtA[iNdEx]
+				iNdEx++
+				stringLen |= uint64(b&0x7F) << shift
+				if b < 0x80 {
+					break
+				}
+			}
+			intStringLen := int(stringLen)
+			if intStringLen < 0 {
+				return ErrInvalidLengthTransfer
+			}
+			postIndex := iNdEx + intStringLen
+			if postIndex < 0 {
+				return ErrInvalidLengthTransfer
+			}
+			if postIndex > l {
+				return io.ErrUnexpectedEOF
+			}
+			m.SlashPrefix = string(dAtA[iNdEx:postIndex])
+			iNdEx = postIndex
 		default:
 			iNdEx = preIndex
 			skippy, err := skipTransfer(dAtA[iNdEx:])
diff --git a/proto/ibc/applications/transfer/v1/transfer.proto b/proto/ibc/applications/transfer/v1/transfer.proto
index 9c60ad65dbd..ce20b6b21da 100644
--- a/proto/ibc/applications/transfer/v1/transfer.proto
+++ b/proto/ibc/applications/transfer/v1/transfer.proto
@@ -27,4 +27,8 @@ message Params {
   // receive_enabled enables or disables all cross-chain token transfers to this
   // chain.
   bool receive_enabled = 2 [(gogoproto.moretags) = "yaml:\"receive_enabled\""];
+  // In order to provide backward compatibility with IBC transfers to other 
+  // IBCv3 chains, we can provide a prefix for denoms containing `/` so that they
+  // are escaped on send and receive with `:`
+  string slash_prefix = 3 [(gogoproto.moretags) = "yaml:\"slash_prefix\""];
 }