diff --git a/.github/workflows/common/codecov/action.yml b/.github/workflows/common/codecov/action.yml
index 264e144f7d..2db479d8cc 100644
--- a/.github/workflows/common/codecov/action.yml
+++ b/.github/workflows/common/codecov/action.yml
@@ -9,7 +9,7 @@ runs:
   steps:
     - name: Install grcov
       shell: bash
-      run: cargo +nightly-2023-07-13 install grcov
+      run: cargo +nightly-2023-07-13 install --locked grcov
     - name: Build
       shell: bash # Limited to 10 threads max
       run: cargo +nightly-2023-07-13 build -j 10 --features frequency-lint-check
diff --git a/e2e/scaffolding/extrinsicHelpers.ts b/e2e/scaffolding/extrinsicHelpers.ts
index b3b4797aa4..aec6818640 100644
--- a/e2e/scaffolding/extrinsicHelpers.ts
+++ b/e2e/scaffolding/extrinsicHelpers.ts
@@ -795,4 +795,20 @@ export class ExtrinsicHelper {
       currentBlock = await getBlockNumber();
     }
   }
+
+  public static submitProposal(keys: KeyringPair, spendAmount: AnyNumber | Compact<u128>) {
+    return new Extrinsic(
+      () => ExtrinsicHelper.api.tx.treasury.proposeSpend(spendAmount, keys.address),
+      keys,
+      ExtrinsicHelper.api.events.treasury.Proposed
+    );
+  }
+
+  public static rejectProposal(keys: KeyringPair, proposalId: any) {
+    return new Extrinsic(
+      () => ExtrinsicHelper.api.tx.treasury.rejectProposal(proposalId),
+      keys,
+      ExtrinsicHelper.api.events.treasury.Rejected
+    );
+  }
 }
diff --git a/e2e/sudo/sudo.test.ts b/e2e/sudo/sudo.test.ts
index f5aa4fdbd8..689907e659 100644
--- a/e2e/sudo/sudo.test.ts
+++ b/e2e/sudo/sudo.test.ts
@@ -8,15 +8,18 @@ import { Extrinsic, ExtrinsicHelper } from '../scaffolding/extrinsicHelpers';
 import { isTestnet } from '../scaffolding/env';
 import { getSudo, getFundingSource } from '../scaffolding/funding';
 import { AVRO_GRAPH_CHANGE } from '../schemas/fixtures/avroGraphChangeSchemaType';
-import { Bytes, u16 } from '@polkadot/types';
+import { Bytes, u16, u64 } from '@polkadot/types';
 import {
   DOLLARS,
   createDelegatorAndDelegation,
   createProviderKeysAndId,
   getCurrentItemizedHash,
   generateSchemaPartialName,
+  createKeys,
+  createMsaAndProvider,
 } from '../scaffolding/helpers';
 import { AVRO_CHAT_MESSAGE } from '../stateful-pallet-storage/fixtures/itemizedSchemaType';
+import { stakeToProvider } from '../scaffolding/helpers';
 
 describe('Sudo required', function () {
   let sudoKey: KeyringPair;
@@ -179,6 +182,77 @@ describe('Sudo required', function () {
           });
         });
       });
+
+      describe('Capacity should not be affected by a hold being slashed', function () {
+        it('stake should fail when overlapping tokens are on hold', async function () {
+          const accountBalance: bigint = 122n * DOLLARS;
+          const stakeBalance: bigint = 100n * DOLLARS;
+          const spendBalance: bigint = 20n * DOLLARS;
+          const proposalBond: bigint = 100n * DOLLARS;
+
+          // Setup some keys and a provider for capacity staking
+          const stakeKeys: KeyringPair = createKeys('StakeKeys');
+          const stakeProviderId: u64 = await createMsaAndProvider(
+            fundingSource,
+            stakeKeys,
+            'StakeProvider',
+            accountBalance
+          );
+
+          // Create a treasury proposal which will result in a hold with minimum bond = 100 DOLLARS
+          const proposalExt = ExtrinsicHelper.submitProposal(stakeKeys, spendBalance);
+          const { target: proposalEvent } = await proposalExt.signAndSend();
+          assert.notEqual(proposalEvent, undefined, 'should return a Proposal event');
+
+          // Confirm that the tokens were reserved/hold in the stakeKeys account using the query API
+          let stakedAcctInfo = await ExtrinsicHelper.getAccountInfo(stakeKeys.address);
+          assert.equal(
+            stakedAcctInfo.data.reserved,
+            proposalBond,
+            `expected ${proposalBond} reserved balance, got ${stakedAcctInfo.data.reserved}`
+          );
+
+          // Create a stake that will result in overlapping tokens being frozen
+          // stake will allow only the balance not on hold to be staked
+          await assert.rejects(stakeToProvider(fundingSource, stakeKeys, stakeProviderId, stakeBalance));
+
+          // Slash the provider
+          const slashExt = ExtrinsicHelper.rejectProposal(sudoKey, proposalEvent?.data.proposalIndex);
+          const { target: slashEvent } = await slashExt.sudoSignAndSend();
+          assert.notEqual(slashEvent, undefined, 'should return a Treasury event');
+
+          // Confirm that the tokens were slashed from the stakeKeys account using the query API
+          stakedAcctInfo = await ExtrinsicHelper.getAccountInfo(stakeKeys.address);
+          assert.equal(
+            stakedAcctInfo.data.reserved,
+            0n,
+            `expected 0 reserved balance, got ${stakedAcctInfo.data.reserved}`
+          );
+        });
+
+        it('proposal should fail when overlapping tokens are on hold', async function () {
+          const accountBalance: bigint = 122n * DOLLARS;
+          const stakeBalance: bigint = 100n * DOLLARS;
+          const spendBalance: bigint = 20n * DOLLARS;
+
+          // Setup some keys and a provider for capacity staking
+          const stakeKeys: KeyringPair = createKeys('StakeKeys');
+          const stakeProviderId: u64 = await createMsaAndProvider(
+            fundingSource,
+            stakeKeys,
+            'StakeProvider',
+            accountBalance
+          );
+
+          // Create a stake that will result in overlapping tokens being frozen
+          await assert.doesNotReject(stakeToProvider(fundingSource, stakeKeys, stakeProviderId, stakeBalance));
+
+          // Create a treasury proposal which will result in a hold with minimum bond = 100 DOLLARS
+          // The proposal should fail because the stakeKeys account has overlapping tokens frozen
+          const proposalExt = ExtrinsicHelper.submitProposal(stakeKeys, spendBalance);
+          await assert.rejects(proposalExt.signAndSend());
+        });
+      });
     });
   });
 });