diff --git a/eth2/beacon/configs.py b/eth2/beacon/configs.py
index da5af79667..fe58f06c5d 100644
--- a/eth2/beacon/configs.py
+++ b/eth2/beacon/configs.py
@@ -54,6 +54,7 @@
         ('WHISTLEBLOWER_REWARD_QUOTIENT', int),
         ('ATTESTATION_INCLUSION_REWARD_QUOTIENT', int),
         ('INACTIVITY_PENALTY_QUOTIENT', int),
+        ('MIN_PENALTY_QUOTIENT', int),
         # Max operations per block
         ('MAX_PROPOSER_SLASHINGS', int),
         ('MAX_ATTESTER_SLASHINGS', int),
diff --git a/eth2/beacon/state_machines/forks/serenity/configs.py b/eth2/beacon/state_machines/forks/serenity/configs.py
index 6a5a510ea8..ae891e9142 100644
--- a/eth2/beacon/state_machines/forks/serenity/configs.py
+++ b/eth2/beacon/state_machines/forks/serenity/configs.py
@@ -54,6 +54,7 @@
     WHISTLEBLOWER_REWARD_QUOTIENT=2**9,  # (= 512)
     ATTESTATION_INCLUSION_REWARD_QUOTIENT=2**3,  # (= 8)
     INACTIVITY_PENALTY_QUOTIENT=2**24,  # (= 16,777,216)
+    MIN_PENALTY_QUOTIENT=2**5,
     # Max operations per block
     MAX_PROPOSER_SLASHINGS=2**4,  # (= 16)
     MAX_ATTESTER_SLASHINGS=2**0,  # (= 1)
diff --git a/eth2/beacon/state_machines/forks/serenity/epoch_processing.py b/eth2/beacon/state_machines/forks/serenity/epoch_processing.py
index bb65cb113c..cc58025590 100644
--- a/eth2/beacon/state_machines/forks/serenity/epoch_processing.py
+++ b/eth2/beacon/state_machines/forks/serenity/epoch_processing.py
@@ -1085,7 +1085,7 @@ def process_validator_registry(state: BeaconState,
 
     state = validator_registry_transition(state, config)
 
-    # TODO: state = process_slashings(state, config)
+    state = process_slashings(state, config)
 
     # TODO: state = process_exit_queue(state, config)
 
@@ -1130,6 +1130,78 @@ def _update_latest_active_index_roots(state: BeaconState,
     )
 
 
+def _compute_total_penalties(state: BeaconState,
+                             config: BeaconConfig,
+                             current_epoch: Epoch) -> Gwei:
+    epoch_index = current_epoch % config.LATEST_SLASHED_EXIT_LENGTH
+    start_index_in_latest_slashed_balances = (
+        (epoch_index + 1) % config.LATEST_SLASHED_EXIT_LENGTH
+    )
+    total_at_start = state.latest_slashed_balances[start_index_in_latest_slashed_balances]
+    total_at_end = state.latest_slashed_balances[epoch_index]
+    return Gwei(total_at_end - total_at_start)
+
+
+def _compute_individual_penalty(state: BeaconState,
+                                config: BeaconConfig,
+                                validator_index: ValidatorIndex,
+                                total_penalties: Gwei,
+                                total_balance: Gwei) -> Gwei:
+    effective_balance = get_effective_balance(
+        state.validator_balances,
+        validator_index,
+        config.MAX_DEPOSIT_AMOUNT,
+    )
+    return Gwei(
+        max(
+            effective_balance * min(total_penalties * 3, total_balance) // total_balance,
+            effective_balance // config.MIN_PENALTY_QUOTIENT,
+        )
+    )
+
+
+def process_slashings(state: BeaconState,
+                      config: BeaconConfig) -> BeaconState:
+    """
+    Process the slashings.
+    """
+    latest_slashed_exit_length = config.LATEST_SLASHED_EXIT_LENGTH
+    max_deposit_amount = config.MAX_DEPOSIT_AMOUNT
+
+    current_epoch = state.current_epoch(config.SLOTS_PER_EPOCH)
+    active_validator_indices = get_active_validator_indices(state.validator_registry, current_epoch)
+    total_balance = Gwei(
+        sum(
+            get_effective_balance(state.validator_balances, i, max_deposit_amount)
+            for i in active_validator_indices
+        )
+    )
+    total_penalties = _compute_total_penalties(
+        state,
+        config,
+        current_epoch,
+    )
+
+    for validator_index, validator in enumerate(state.validator_registry):
+        validator_index = ValidatorIndex(validator_index)
+        is_halfway_to_withdrawable_epoch = (
+            current_epoch == validator.withdrawable_epoch - latest_slashed_exit_length // 2
+        )
+        if validator.slashed and is_halfway_to_withdrawable_epoch:
+            penalty = _compute_individual_penalty(
+                state=state,
+                config=config,
+                validator_index=validator_index,
+                total_penalties=total_penalties,
+                total_balance=total_balance,
+            )
+            state = state.update_validator_balance(
+                validator_index=validator_index,
+                balance=state.validator_balances[validator_index] - penalty,
+            )
+    return state
+
+
 def process_final_updates(state: BeaconState,
                           config: BeaconConfig) -> BeaconState:
     current_epoch = state.current_epoch(config.SLOTS_PER_EPOCH)
diff --git a/tests/eth2/beacon/conftest.py b/tests/eth2/beacon/conftest.py
index bdb19120f8..d642ec9982 100644
--- a/tests/eth2/beacon/conftest.py
+++ b/tests/eth2/beacon/conftest.py
@@ -561,6 +561,11 @@ def inactivity_penalty_quotient():
     return SERENITY_CONFIG.INACTIVITY_PENALTY_QUOTIENT
 
 
+@pytest.fixture
+def min_penalty_quotient():
+    return SERENITY_CONFIG.MIN_PENALTY_QUOTIENT
+
+
 @pytest.fixture
 def max_proposer_slashings():
     return SERENITY_CONFIG.MAX_PROPOSER_SLASHINGS
@@ -706,6 +711,7 @@ def config(
         whistleblower_reward_quotient,
         attestation_inclusion_reward_quotient,
         inactivity_penalty_quotient,
+        min_penalty_quotient,
         max_proposer_slashings,
         max_attester_slashings,
         max_attestations,
@@ -744,6 +750,7 @@ def config(
         WHISTLEBLOWER_REWARD_QUOTIENT=whistleblower_reward_quotient,
         ATTESTATION_INCLUSION_REWARD_QUOTIENT=attestation_inclusion_reward_quotient,
         INACTIVITY_PENALTY_QUOTIENT=inactivity_penalty_quotient,
+        MIN_PENALTY_QUOTIENT=min_penalty_quotient,
         MAX_PROPOSER_SLASHINGS=max_proposer_slashings,
         MAX_ATTESTER_SLASHINGS=max_attester_slashings,
         MAX_ATTESTATIONS=max_attestations,
diff --git a/tests/eth2/beacon/state_machines/forks/test_serenity_epoch_processing.py b/tests/eth2/beacon/state_machines/forks/test_serenity_epoch_processing.py
index b15b93095d..7cd734fe9c 100644
--- a/tests/eth2/beacon/state_machines/forks/test_serenity_epoch_processing.py
+++ b/tests/eth2/beacon/state_machines/forks/test_serenity_epoch_processing.py
@@ -54,6 +54,8 @@
 from eth2.beacon.types.pending_attestation_records import PendingAttestationRecord
 from eth2.beacon.state_machines.forks.serenity.epoch_processing import (
     _check_if_update_validator_registry,
+    _compute_individual_penalty,
+    _compute_total_penalties,
     _current_previous_epochs_justifiable,
     _get_finalized_epoch,
     _process_rewards_and_penalties_for_attestation_inclusion,
@@ -64,6 +66,7 @@
     process_ejections,
     process_final_updates,
     process_justification,
+    process_slashings,
     process_validator_registry,
     update_validator_registry,
 )
@@ -1145,6 +1148,145 @@ def mock_generate_seed(state,
             assert result_state.current_shuffling_seed != new_seed
 
 
+@pytest.mark.parametrize(
+    (
+        'slots_per_epoch',
+        'genesis_slot',
+        'current_epoch',
+        'latest_slashed_exit_length',
+        'latest_slashed_balances',
+        'expected_total_penalties',
+    ),
+    [
+        (4, 8, 8, 8, (30, 10) + (0,) * 6, 30 - 10)
+    ]
+)
+def test_compute_total_penalties(genesis_state,
+                                 config,
+                                 slots_per_epoch,
+                                 current_epoch,
+                                 latest_slashed_balances,
+                                 expected_total_penalties):
+    state = genesis_state.copy(
+        slot=get_epoch_start_slot(current_epoch, slots_per_epoch),
+        latest_slashed_balances=latest_slashed_balances,
+    )
+    total_penalties = _compute_total_penalties(
+        state,
+        config,
+        current_epoch,
+    )
+    assert total_penalties == expected_total_penalties
+
+
+@pytest.mark.parametrize(
+    (
+        'num_validators',
+        'slots_per_epoch',
+        'genesis_slot',
+        'current_epoch',
+        'latest_slashed_exit_length',
+    ),
+    [
+        (
+            10, 4, 8, 8, 8,
+        )
+    ]
+)
+@pytest.mark.parametrize(
+    (
+        'total_penalties',
+        'total_balance',
+        'min_penalty_quotient',
+        'expected_penalty',
+    ),
+    [
+        (
+            10**9,  # 1 ETH
+            (32 * 10**9 * 10),
+            2**5,
+            # effective_balance // MIN_PENALTY_QUOTIENT,
+            32 * 10**9 // 2**5,
+        ),
+        (
+            10**9,  # 1 ETH
+            (32 * 10**9 * 10),
+            2**10,  # Make MIN_PENALTY_QUOTIENT greater
+            # effective_balance * min(total_penalties * 3, total_balance) // total_balance,
+            32 * 10**9 * min(10**9 * 3, (32 * 10**9 * 10)) // (32 * 10**9 * 10),
+        ),
+    ]
+)
+def test_compute_individual_penalty(genesis_state,
+                                    config,
+                                    slots_per_epoch,
+                                    current_epoch,
+                                    latest_slashed_exit_length,
+                                    total_penalties,
+                                    total_balance,
+                                    expected_penalty):
+    state = genesis_state.copy(
+        slot=get_epoch_start_slot(current_epoch, slots_per_epoch),
+    )
+    validator_index = 0
+    penalty = _compute_individual_penalty(
+        state=state,
+        config=config,
+        validator_index=validator_index,
+        total_penalties=total_penalties,
+        total_balance=total_balance,
+    )
+    assert penalty == expected_penalty
+
+
+@pytest.mark.parametrize(
+    (
+        'num_validators',
+        'slots_per_epoch',
+        'genesis_slot',
+        'current_epoch',
+        'latest_slashed_exit_length',
+        'latest_slashed_balances',
+        'expected_penalty',
+    ),
+    [
+        (
+            10,
+            4,
+            8,
+            8,
+            8,
+            (2 * 10**9, 10**9) + (0,) * 6,
+            32 * 10**9 // 2**5,
+        ),
+    ]
+)
+def test_process_slashings(genesis_state,
+                           config,
+                           current_epoch,
+                           latest_slashed_balances,
+                           slots_per_epoch,
+                           latest_slashed_exit_length,
+                           expected_penalty):
+    state = genesis_state.copy(
+        slot=get_epoch_start_slot(current_epoch, slots_per_epoch),
+        latest_slashed_balances=latest_slashed_balances,
+    )
+    slashing_validator_index = 0
+    validator = state.validator_registry[slashing_validator_index].copy(
+        slashed=True,
+        withdrawable_epoch=current_epoch + latest_slashed_exit_length // 2
+    )
+    state = state.update_validator_registry(slashing_validator_index, validator)
+
+    result_state = process_slashings(state, config)
+    penalty = (
+        state.validator_balances[slashing_validator_index] -
+        result_state.validator_balances[slashing_validator_index]
+    )
+    assert penalty == expected_penalty
+
+
 #
 # Final updates
 #