diff --git a/.github/workflows/codecov.yaml b/.github/workflows/codecov.yaml
index 75cbd67d..e5a7dd9a 100644
--- a/.github/workflows/codecov.yaml
+++ b/.github/workflows/codecov.yaml
@@ -38,8 +38,8 @@ jobs:
         run: npm run coverage
 
       - name: Upload coverage to Codecov
-        uses: codecov/codecov-action@v3
+        uses: codecov/codecov-action@v5
         with:
           token: ${{ secrets.CODECOV_TOKEN }}
-          files: lcov.info
+          files: coverage/lcov.info
           fail_ci_if_error: true
diff --git a/codecov.yml b/codecov.yml
new file mode 100644
index 00000000..c41479ba
--- /dev/null
+++ b/codecov.yml
@@ -0,0 +1,10 @@
+coverage:
+  status:
+    project:
+      default:
+        target: auto
+        threshold: 0%
+    patch:
+      default:
+        target: auto
+        threshold: 0%
diff --git a/contracts/InterchainTokenFactory.sol b/contracts/InterchainTokenFactory.sol
index 206d7754..19c7a548 100644
--- a/contracts/InterchainTokenFactory.sol
+++ b/contracts/InterchainTokenFactory.sol
@@ -55,7 +55,7 @@ contract InterchainTokenFactory is IInterchainTokenFactory, ITokenManagerType, M
         chainNameHash = interchainTokenService.chainNameHash();
     }
 
-    function _setup(bytes calldata data) internal override {}
+    function _setup(bytes calldata /* data */) internal pure override {}
 
     /**
      * @notice Getter for the contract id.
diff --git a/test/InterchainTokenFactory.js b/test/InterchainTokenFactory.js
index 508142f6..335b2fd6 100644
--- a/test/InterchainTokenFactory.js
+++ b/test/InterchainTokenFactory.js
@@ -6,7 +6,7 @@ const { ethers } = require('hardhat');
 const {
     getContractAt,
     Wallet,
-    constants: { AddressZero },
+    constants: { AddressZero, HashZero },
     utils: { defaultAbiCoder, keccak256, toUtf8Bytes, arrayify },
 } = ethers;
 const { deployAll, deployContract } = require('../scripts/deploy');
@@ -19,6 +19,7 @@ const {
     OPERATOR_ROLE,
     FLOW_LIMITER_ROLE,
 } = require('./constants');
+const { getBytecodeHash } = require('@axelar-network/axelar-chains-config');
 
 describe('InterchainTokenFactory', () => {
     let wallet, otherWallet;
@@ -50,6 +51,40 @@ describe('InterchainTokenFactory', () => {
         });
     });
 
+    describe('Upgrade', async () => {
+        it('Should revert on upgrade from non-owner account', async () => {
+            await expectRevert(
+                (gasOptions) => tokenFactory.connect(otherWallet).upgrade(AddressZero, HashZero, '0x', gasOptions),
+                tokenFactory,
+                'NotOwner',
+            );
+        });
+
+        it('Should upgrade the implementation', async () => {
+            const newImplementation = await deployContract(wallet, 'InterchainTokenFactory', [service.address]);
+            const newImplementationCodeHash = await getBytecodeHash(newImplementation);
+            const setupParams = '0x';
+
+            await expect(tokenFactory.upgrade(newImplementation.address, newImplementationCodeHash, setupParams))
+                .to.emit(tokenFactory, 'Upgraded')
+                .withArgs(newImplementation.address);
+
+            expect(await tokenFactory.implementation()).to.eq(newImplementation.address);
+        });
+
+        it('Should upgrade the implementation with setup data', async () => {
+            const newImplementation = await deployContract(wallet, 'InterchainTokenFactory', [service.address]);
+            const newImplementationCodeHash = await getBytecodeHash(newImplementation);
+            const setupParams = '0x1234';
+
+            await expect(tokenFactory.upgrade(newImplementation.address, newImplementationCodeHash, setupParams))
+                .to.emit(tokenFactory, 'Upgraded')
+                .withArgs(newImplementation.address);
+
+            expect(await tokenFactory.implementation()).to.eq(newImplementation.address);
+        });
+    });
+
     describe('Canonical Interchain Token Factory', async () => {
         let token, tokenId, tokenManagerAddress;
         const tokenCap = BigInt(1e18);