diff --git a/services/api/src/blockchain.rs b/services/api/src/blockchain.rs
index fa06ace..0caaffa 100644
--- a/services/api/src/blockchain.rs
+++ b/services/api/src/blockchain.rs
@@ -40,6 +40,10 @@ pub struct BlockchainClient {
 /// regardless of their finalization status to bound memory growth.
 const WATCHED_TX_TTL: Duration = Duration::from_secs(30 * 60); // 30 minutes
 
+/// Maximum number of entries in `watched_txs`. When the cap is reached the
+/// oldest entry (by insertion time) is evicted to make room for the new one.
+pub const WATCHED_TX_MAX_SIZE: usize = 10_000;
+
 #[derive(Default)]
 struct MonitoringState {
     /// Maps tx hash → time it was first watched. Evicted after `WATCHED_TX_TTL`.
@@ -946,7 +950,6 @@ impl BlockchainClient {
     }
 
     pub async fn watch_transaction(&self, hash: &str) {
-        const MAX_WATCHED: usize = 1000;
         let mut set = self.monitor.watched_txs.write().await;
 
         // Evict TTL-expired entries first.
@@ -959,15 +962,25 @@ impl BlockchainClient {
             tracing::info!(evicted, "watched_txs: TTL eviction");
         }
 
-        if set.len() < MAX_WATCHED {
-            set.entry(hash.to_string()).or_insert(now);
-        } else {
-            tracing::warn!(
-                cap = MAX_WATCHED,
-                hash,
-                "watched_txs cap reached, dropping tx"
-            );
+        // If still at cap, evict the single oldest entry to make room.
+        if set.len() >= WATCHED_TX_MAX_SIZE {
+            if let Some(oldest_key) = set
+                .iter()
+                .min_by_key(|(_, inserted_at)| *inserted_at)
+                .map(|(k, _)| k.clone())
+            {
+                set.remove(&oldest_key);
+                self.metrics.observe_tx_eviction(1);
+                tracing::warn!(
+                    cap = WATCHED_TX_MAX_SIZE,
+                    evicted_hash = %oldest_key,
+                    new_hash = hash,
+                    "watched_txs cap reached, evicting oldest entry"
+                );
+            }
         }
+
+        set.entry(hash.to_string()).or_insert(now);
     }
 
     /// Replay missed events from `from_ledger` up to the current confirmed tip.
@@ -1085,30 +1098,31 @@ mod tests {
         }
     }
 
-    /// Inserting more than MAX_WATCHED hashes must not grow the set beyond the cap.
+    /// Inserting more than WATCHED_TX_MAX_SIZE hashes must not grow the set beyond the cap.
     #[tokio::test]
     async fn watched_txs_cap_prevents_unbounded_growth() {
-        use super::{MonitoringState, WATCHED_TX_TTL};
+        use super::{MonitoringState, WATCHED_TX_MAX_SIZE, WATCHED_TX_TTL};
         use std::sync::Arc;
-        use tokio::sync::RwLock;
 
-        // Build a minimal MonitoringState directly.
         let state = Arc::new(MonitoringState::default());
 
-        // Insert MAX_WATCHED + 50 unique hashes.
-        const MAX_WATCHED: usize = 1000;
-        for i in 0..MAX_WATCHED + 50 {
+        // Insert WATCHED_TX_MAX_SIZE + 50 unique hashes, simulating the eviction logic.
+        for i in 0..WATCHED_TX_MAX_SIZE + 50 {
             let hash = format!("hash-{i}");
             let mut set = state.watched_txs.write().await;
             let now = std::time::Instant::now();
             set.retain(|_, inserted_at| now.duration_since(*inserted_at) < WATCHED_TX_TTL);
-            if set.len() < MAX_WATCHED {
-                set.entry(hash).or_insert(now);
+            // Evict oldest if at cap.
+            if set.len() >= WATCHED_TX_MAX_SIZE {
+                if let Some(oldest) = set.iter().min_by_key(|(_, t)| *t).map(|(k, _)| k.clone()) {
+                    set.remove(&oldest);
+                }
             }
+            set.entry(hash).or_insert(now);
         }
 
         let len = state.watched_txs.read().await.len();
-        assert_eq!(len, MAX_WATCHED, "set must not exceed cap");
+        assert_eq!(len, WATCHED_TX_MAX_SIZE, "set must not exceed cap");
     }
 
     /// Entries older than WATCHED_TX_TTL are evicted on the next insert.
@@ -1138,4 +1152,43 @@ mod tests {
         assert!(!set.contains_key("old-hash"), "stale entry must be evicted");
         assert!(set.contains_key("new-hash"), "fresh entry must be present");
     }
+
+    /// When the cap is reached, the oldest entry is evicted (not the new one dropped).
+    #[tokio::test]
+    async fn watched_txs_cap_evicts_oldest_not_newest() {
+        use super::{MonitoringState, WATCHED_TX_MAX_SIZE, WATCHED_TX_TTL};
+        use std::sync::Arc;
+        use std::time::{Duration, Instant};
+
+        let state = Arc::new(MonitoringState::default());
+
+        // Fill to cap, with "oldest-hash" inserted first (oldest timestamp).
+        {
+            let mut set = state.watched_txs.write().await;
+            let old_time = Instant::now() - Duration::from_secs(60);
+            set.insert("oldest-hash".to_string(), old_time);
+            let now = Instant::now();
+            for i in 1..WATCHED_TX_MAX_SIZE {
+                set.insert(format!("hash-{i}"), now);
+            }
+        }
+
+        // Insert one more — should evict "oldest-hash".
+        {
+            let mut set = state.watched_txs.write().await;
+            let now = Instant::now();
+            set.retain(|_, inserted_at| now.duration_since(*inserted_at) < WATCHED_TX_TTL);
+            if set.len() >= WATCHED_TX_MAX_SIZE {
+                if let Some(oldest) = set.iter().min_by_key(|(_, t)| *t).map(|(k, _)| k.clone()) {
+                    set.remove(&oldest);
+                }
+            }
+            set.entry("newest-hash".to_string()).or_insert(now);
+        }
+
+        let set = state.watched_txs.read().await;
+        assert!(!set.contains_key("oldest-hash"), "oldest entry must be evicted");
+        assert!(set.contains_key("newest-hash"), "newest entry must be present");
+        assert_eq!(set.len(), WATCHED_TX_MAX_SIZE, "size must remain at cap");
+    }
 }