diff --git a/consensus/state_processing/src/per_block_processing.rs b/consensus/state_processing/src/per_block_processing.rs
index b70579c826..43414f7085 100644
--- a/consensus/state_processing/src/per_block_processing.rs
+++ b/consensus/state_processing/src/per_block_processing.rs
@@ -20,7 +20,7 @@ pub use verify_attestation::{
 };
 pub use verify_bls_to_execution_change::verify_bls_to_execution_change;
 pub use verify_deposit::{
-    get_existing_validator_index, verify_deposit_merkle_proof, verify_deposit_signature,
+    get_existing_validator_index, is_valid_deposit_signature, verify_deposit_merkle_proof,
 };
 pub use verify_exit::verify_exit;
 
diff --git a/consensus/state_processing/src/per_block_processing/process_operations.rs b/consensus/state_processing/src/per_block_processing/process_operations.rs
index 9aaef8f965..35a0c0ffad 100644
--- a/consensus/state_processing/src/per_block_processing/process_operations.rs
+++ b/consensus/state_processing/src/per_block_processing/process_operations.rs
@@ -6,6 +6,7 @@ use crate::common::{
 use crate::per_block_processing::errors::{BlockProcessingError, IntoWithIndex};
 use crate::VerifySignatures;
 use types::consts::altair::{PARTICIPATION_FLAG_WEIGHTS, PROPOSER_WEIGHT, WEIGHT_DENOMINATOR};
+use types::validator::is_compounding_withdrawal_credential;
 
 pub fn process_operations<E: EthSpec, Payload: AbstractExecPayload<E>>(
     state: &mut BeaconState<E>,
@@ -431,15 +432,47 @@ pub fn apply_deposit<E: EthSpec>(
     let amount = deposit.data.amount;
 
     if let Some(index) = validator_index {
-        // Update the existing validator balance.
-        increase_balance(state, index as usize, amount)?;
+        // [Modified in Electra:EIP7251]
+        if let Ok(pending_balance_deposits) = state.pending_balance_deposits_mut() {
+            pending_balance_deposits.push(PendingBalanceDeposit { index, amount })?;
+
+            let validator = state
+                .validators()
+                .get(index as usize)
+                .ok_or(BeaconStateError::UnknownValidator(index as usize))?;
+
+            if is_compounding_withdrawal_credential(deposit.data.withdrawal_credentials, spec)
+                && validator.has_eth1_withdrawal_credential(spec)
+                && is_valid_deposit_signature(&deposit.data, spec).is_ok()
+            {
+                state.switch_to_compounding_validator(index as usize, spec)?;
+            }
+        } else {
+            // Update the existing validator balance.
+            increase_balance(state, index as usize, amount)?;
+        }
     } else {
         // The signature should be checked for new validators. Return early for a bad
         // signature.
-        if verify_deposit_signature(&deposit.data, spec).is_err() {
+        if is_valid_deposit_signature(&deposit.data, spec).is_err() {
             return Ok(());
         }
 
+        let new_validator_index = state.validators().len();
+
+        // [Modified in Electra:EIP7251]
+        let (effective_balance, state_balance) = if state.fork_name_unchecked() >= ForkName::Electra
+        {
+            (0, 0)
+        } else {
+            (
+                std::cmp::min(
+                    amount.safe_sub(amount.safe_rem(spec.effective_balance_increment)?)?,
+                    spec.max_effective_balance,
+                ),
+                amount,
+            )
+        };
         // Create a new validator.
         let validator = Validator {
             pubkey: deposit.data.pubkey,
@@ -448,14 +481,11 @@ pub fn apply_deposit<E: EthSpec>(
             activation_epoch: spec.far_future_epoch,
             exit_epoch: spec.far_future_epoch,
             withdrawable_epoch: spec.far_future_epoch,
-            effective_balance: std::cmp::min(
-                amount.safe_sub(amount.safe_rem(spec.effective_balance_increment)?)?,
-                spec.max_effective_balance,
-            ),
+            effective_balance,
             slashed: false,
         };
         state.validators_mut().push(validator)?;
-        state.balances_mut().push(deposit.data.amount)?;
+        state.balances_mut().push(state_balance)?;
 
         // Altair or later initializations.
         if let Ok(previous_epoch_participation) = state.previous_epoch_participation_mut() {
@@ -467,6 +497,14 @@ pub fn apply_deposit<E: EthSpec>(
         if let Ok(inactivity_scores) = state.inactivity_scores_mut() {
             inactivity_scores.push(0)?;
         }
+
+        // [New in Electra:EIP7251]
+        if let Ok(pending_balance_deposits) = state.pending_balance_deposits_mut() {
+            pending_balance_deposits.push(PendingBalanceDeposit {
+                index: new_validator_index as u64,
+                amount,
+            })?;
+        }
     }
 
     Ok(())
diff --git a/consensus/state_processing/src/per_block_processing/verify_deposit.rs b/consensus/state_processing/src/per_block_processing/verify_deposit.rs
index a964f3b574..c996e580a7 100644
--- a/consensus/state_processing/src/per_block_processing/verify_deposit.rs
+++ b/consensus/state_processing/src/per_block_processing/verify_deposit.rs
@@ -14,7 +14,7 @@ fn error(reason: DepositInvalid) -> BlockOperationError<DepositInvalid> {
 /// Verify `Deposit.pubkey` signed `Deposit.signature`.
 ///
 /// Spec v0.12.1
-pub fn verify_deposit_signature(deposit_data: &DepositData, spec: &ChainSpec) -> Result<()> {
+pub fn is_valid_deposit_signature(deposit_data: &DepositData, spec: &ChainSpec) -> Result<()> {
     let (public_key, signature, msg) = deposit_pubkey_signature_message(deposit_data, spec)
         .ok_or_else(|| error(DepositInvalid::BadBlsBytes))?;