diff --git a/common/cosmwasm-smart-contracts/coconut-dkg/src/types.rs b/common/cosmwasm-smart-contracts/coconut-dkg/src/types.rs
index bd0f1d4e1a..a4d0afb077 100644
--- a/common/cosmwasm-smart-contracts/coconut-dkg/src/types.rs
+++ b/common/cosmwasm-smart-contracts/coconut-dkg/src/types.rs
@@ -270,4 +270,8 @@ impl EpochState {
     pub fn is_in_progress(&self) -> bool {
         matches!(self, EpochState::InProgress)
     }
+
+    pub fn is_dealing_exchange(&self) -> bool {
+        matches!(self, EpochState::DealingExchange { .. })
+    }
 }
diff --git a/contracts/coconut-dkg/src/epoch_state/transactions/advance_epoch_state.rs b/contracts/coconut-dkg/src/epoch_state/transactions/advance_epoch_state.rs
index 715a6e5656..57681ed3cf 100644
--- a/contracts/coconut-dkg/src/epoch_state/transactions/advance_epoch_state.rs
+++ b/contracts/coconut-dkg/src/epoch_state/transactions/advance_epoch_state.rs
@@ -54,6 +54,15 @@ pub fn try_advance_epoch_state(deps: DepsMut<'_>, env: Env) -> Result<Response,
         }
     };
 
+    // if we're advancing into dealing exchange, we need to set the threshold value based on the number of registered dealers
+    if next_state.is_dealing_exchange() {
+        // note: ceiling in integer division can be achieved via q = (x + y - 1) / y;
+        let registered_dealers = current_epoch.state_progress.registered_dealers as u64;
+        // set the threshold to 2/3 amount of registered dealers
+        let threshold = (2 * registered_dealers + 3 - 1) / 3;
+        THRESHOLD.save(deps.storage, &threshold)?;
+    }
+
     // edge case: we have completed DKG with fewer than threshold number of verified keys.
     // we have no choice but to reset since no credentials can be issued anyway
     if next_state.is_in_progress() {