The undelegation process unbonds stake from a validator, converting delegation tokens dPEN to stake PEN. Undelegations may be performed in any block, but only settle after the undelegation has exited the unbonding queue.

The unbonding queue is a FIFO queue allowing only a limited amount of stake to be unbonded in each epoch, according to an unbonding rate selected by governance. Undelegations are inserted into the unbonding queue in FIFO order. Unlike delegations, where only the total amount of newly bonded stake is revealed, undelegations reveal the precise amount of newly unbonded stake, allowing the unbonding queue to function.

Undelegations are accomplished by creating a transaction with a Undelegate description. This description has different behaviour depending on whether or not the validator was slashed.

In the unslashed case, the undelegate description spends a note with value dPEN, reveals , and produces PEN for the transaction’s balance, where is the index of the current epoch. However, the nullifiers revealed by undelegate descriptions are not immediately included in the nullifier set, and new notes created by a transaction containing an undelegate description are not immediately included in the state commitment tree. Instead, the transaction is placed into the unbonding queue to be applied later. In the first block of each epoch, transactions are applied if the corresponding validator remains unslashed, until the unbonding limit is reached.

If a validator is slashed, any undelegate transactions currently in the unbonding queue are discarded. Because the nullifiers for the notes those transactions spent were not included in the nullifier set, the notes remain spendable, allowing a user to create a new undelegation description.

Undelegations from a slashed validator are settled immediately. The undelegate description spends a note with value dPEN and produces PEN, where is the slashing penalty and is the epoch at which the validator was slashed. The remaining value, , is burned.

Because pending undelegations from a slashed validator are discarded without applying their nullifiers, those notes can be spent again in a post-slashing undelegation description. This causes linkability between the discarded undelegations and the post-slashing undelegations, but this is not a concern because slashing is a rare and unplanned event which already imposes worse losses on delegators.