diff --git a/slashing/slashing.go b/slashing/slashing.go
new file mode 100644
index 00000000..e817b341
--- /dev/null
+++ b/slashing/slashing.go
@@ -0,0 +1,107 @@
+package slashing
+
+import (
+	"fmt"
+	"github.com/ethereum/go-ethereum/common"
+	"strings"
+)
+
+type StakeSource string
+
+const (
+	StakeSourceSlashable    StakeSource = "slashable"
+	StakeSourceNonSlashable StakeSource = "non-slashable"
+	StakeSourceTotal        StakeSource = "total"
+)
+
+type OperatorSet struct {
+	AvsAddress    common.Address
+	OperatorSetId int32
+}
+
+type State struct {
+	TotalMagnitude      uint64
+	OperatorSets        []OperatorSet
+	SlashableMagnitudes []uint64
+}
+
+func (s *State) Print() {
+	fmt.Println(strings.Repeat("-", 60))
+	fmt.Println("Total Magnitude: ", s.TotalMagnitude)
+	fmt.Println()
+	for i, operatorSet := range s.OperatorSets {
+		fmt.Println("Operator Set: ", i)
+		fmt.Println("AVS Address: ", operatorSet.AvsAddress.Hex())
+		fmt.Println("Operator Set ID: ", operatorSet.OperatorSetId)
+		fmt.Println("Magnitude: ", s.SlashableMagnitudes[i])
+		fmt.Println()
+	}
+	fmt.Println(strings.Repeat("-", 60))
+}
+
+func CalculateMagnitudes(
+	currentState State,
+	operatorSet OperatorSet,
+	stakeSource StakeSource,
+	bips float64,
+	debug bool,
+) (*State, error) {
+	if debug {
+		currentState.Print()
+	}
+	slashableProportion := bips / 10_000
+	if stakeSource == StakeSourceSlashable {
+		currentSlashableProportion := float64(sumUInt64Array(currentState.SlashableMagnitudes)) / float64(currentState.TotalMagnitude)
+		if currentSlashableProportion <= slashableProportion {
+			return nil, fmt.Errorf("slashable proportion to allocate %f is less than or equal to available slashable proportion %f", slashableProportion, currentSlashableProportion)
+		}
+
+		nonSlashableProportion := (float64(currentState.TotalMagnitude) - float64(sumUInt64Array(currentState.SlashableMagnitudes))) / float64(currentState.TotalMagnitude)
+		if debug {
+			fmt.Println("nonSlashableProportion: ", nonSlashableProportion)
+		}
+
+		allocatedMagnitude := float64(sumUInt64Array(currentState.SlashableMagnitudes))
+		if debug {
+			fmt.Println("allocatedMagnitude: ", allocatedMagnitude)
+		}
+
+		totalMagnitudeNew := allocatedMagnitude / (1 - slashableProportion - nonSlashableProportion)
+		if debug {
+			fmt.Println("totalMagnitudeNew: ", totalMagnitudeNew)
+		}
+
+		slashableMagnitude := slashableProportion * totalMagnitudeNew
+		if debug {
+			fmt.Println("slashableMagnitude: ", slashableMagnitude)
+		}
+
+		nonSlashableMagnitude := nonSlashableProportion * totalMagnitudeNew
+		if debug {
+			fmt.Println("nonSlashableMagnitude: ", nonSlashableMagnitude)
+		}
+
+		opSetToUpdate := []OperatorSet{operatorSet}
+		slashableMagnitudeSet := []uint64{uint64(slashableMagnitude)}
+
+		newState := &State{
+			TotalMagnitude:      uint64(totalMagnitudeNew),
+			OperatorSets:        opSetToUpdate,
+			SlashableMagnitudes: slashableMagnitudeSet,
+		}
+		if debug {
+			newState.Print()
+		}
+		return newState, nil
+	} else {
+		return nil, fmt.Errorf("unimplemented stake source %s", stakeSource)
+	}
+}
+
+func sumUInt64Array(arr []uint64) uint64 {
+	sum := uint64(0)
+	for _, v := range arr {
+		sum += v
+	}
+	return sum
+}
diff --git a/slashing/slashing_test.go b/slashing/slashing_test.go
new file mode 100644
index 00000000..9bf5d51c
--- /dev/null
+++ b/slashing/slashing_test.go
@@ -0,0 +1,146 @@
+package slashing
+
+import (
+	"testing"
+
+	"github.com/ethereum/go-ethereum/common"
+
+	"github.com/stretchr/testify/assert"
+)
+
+func TestCalculateNewState(t *testing.T) {
+
+	var tests = []struct {
+		name        string
+		oldState    State
+		stakeSource StakeSource
+		operatorSet OperatorSet
+		bips        float64
+		newState    *State
+		debug       bool
+		expectErr   bool
+	}{
+		{
+			name: "Simple case where stake is sourced from slashable stake. A new operator set is added",
+			oldState: State{
+				TotalMagnitude: 10,
+				OperatorSets: []OperatorSet{
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 1,
+					},
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 2,
+					},
+				},
+				SlashableMagnitudes: []uint64{1, 1},
+			},
+			stakeSource: StakeSourceSlashable,
+			operatorSet: OperatorSet{
+				AvsAddress:    common.HexToAddress("0xabc"),
+				OperatorSetId: 4,
+			},
+			bips: 1000,
+			newState: &State{
+				TotalMagnitude: 20.0,
+				OperatorSets: []OperatorSet{
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 4,
+					},
+				},
+				SlashableMagnitudes: []uint64{2},
+			},
+		},
+		{
+			name: "Simple case where stake is sourced from slashable stake. Existing operator set is updated",
+			oldState: State{
+				TotalMagnitude: 10,
+				OperatorSets: []OperatorSet{
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 1,
+					},
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 2,
+					},
+				},
+				SlashableMagnitudes: []uint64{1, 1},
+			},
+			stakeSource: StakeSourceSlashable,
+			operatorSet: OperatorSet{
+				AvsAddress:    common.HexToAddress("0xabc"),
+				OperatorSetId: 1,
+			},
+			bips: 1500,
+			newState: &State{
+				TotalMagnitude: 40,
+				OperatorSets: []OperatorSet{
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 1,
+					},
+				},
+				SlashableMagnitudes: []uint64{6},
+			},
+		},
+		{
+			name: "New slashable stake is equal to available slashable stake so it should fail",
+			oldState: State{
+				TotalMagnitude: 10,
+				OperatorSets: []OperatorSet{
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 1,
+					},
+					{
+						AvsAddress:    common.HexToAddress("0xabc"),
+						OperatorSetId: 2,
+					},
+				},
+				SlashableMagnitudes: []uint64{1, 1},
+			},
+			stakeSource: StakeSourceSlashable,
+			operatorSet: OperatorSet{
+				AvsAddress:    common.HexToAddress("0xabc"),
+				OperatorSetId: 4,
+			},
+			bips:      2000,
+			expectErr: true,
+		},
+		//{
+		//	name: "Simple case where stake is sourced from non slashable stake",
+		//	oldState: State{
+		//		TotalMagnitude:      10,
+		//		OperatorSets:        []int{1, 2},
+		//		SlashableMagnitudes: []float64{1, 1},
+		//	},
+		//	stakeSource: StakeSourceNonSlashable,
+		//	operatorSet: 4,
+		//	bips:        100,
+		//	newState: &State{
+		//		TotalMagnitude:      10.0,
+		//		OperatorSets:        []int{4},
+		//		SlashableMagnitudes: []float64{1.0},
+		//	},
+		//},
+	}
+
+	for _, tt := range tests {
+		t.Run(tt.name, func(t *testing.T) {
+			newState, err := CalculateMagnitudes(tt.oldState, tt.operatorSet, tt.stakeSource, tt.bips, tt.debug)
+			if tt.expectErr {
+				assert.Error(t, err)
+
+			} else {
+				assert.NoError(t, err)
+				assert.Equal(t, tt.newState, newState)
+			}
+
+		})
+
+	}
+
+}