diff --git a/bootstrap/helpers/parsers.php b/bootstrap/helpers/parsers.php
index fa40857ac..6b66de8a2 100644
--- a/bootstrap/helpers/parsers.php
+++ b/bootstrap/helpers/parsers.php
@@ -442,9 +442,9 @@ function applicationParser(Application $resource, int $pull_request_id = 0, ?int
             $value = str($value);
             $regex = '/\$(\{?([a-zA-Z_\x80-\xff][a-zA-Z0-9_\x80-\xff]*)\}?)/';
             preg_match_all($regex, $value, $valueMatches);
-            if (count($valueMatches[1]) > 0) {
-                foreach ($valueMatches[1] as $match) {
-                    $match = replaceVariables($match);
+            if (count($valueMatches[2]) > 0) {
+                foreach ($valueMatches[2] as $match) {
+                    $match = str($match);
                     if ($match->startsWith('SERVICE_')) {
                         if ($magicEnvironments->has($match->value())) {
                             continue;
@@ -1509,6 +1509,18 @@ function serviceParser(Service $resource): Collection
         return collect([]);
     }
     $services = data_get($yaml, 'services', collect([]));
+
+    // Clean up corrupted environment variables from previous parser bugs
+    // (keys starting with $ or ending with } should not exist as env var names)
+    $resource->environment_variables()
+        ->where('resourceable_type', get_class($resource))
+        ->where('resourceable_id', $resource->id)
+        ->where(function ($q) {
+            $q->where('key', 'LIKE', '$%')
+                ->orWhere('key', 'LIKE', '%}');
+        })
+        ->delete();
+
     $topLevel = collect([
         'volumes' => collect(data_get($yaml, 'volumes', [])),
         'networks' => collect(data_get($yaml, 'networks', [])),
@@ -1686,9 +1698,9 @@ function serviceParser(Service $resource): Collection
             $value = str($value);
             $regex = '/\$(\{?([a-zA-Z_\x80-\xff][a-zA-Z0-9_\x80-\xff]*)\}?)/';
             preg_match_all($regex, $value, $valueMatches);
-            if (count($valueMatches[1]) > 0) {
-                foreach ($valueMatches[1] as $match) {
-                    $match = replaceVariables($match);
+            if (count($valueMatches[2]) > 0) {
+                foreach ($valueMatches[2] as $match) {
+                    $match = str($match);
                     if ($match->startsWith('SERVICE_')) {
                         if ($magicEnvironments->has($match->value())) {
                             continue;
diff --git a/bootstrap/helpers/services.php b/bootstrap/helpers/services.php
index bd741b76e..20b184a01 100644
--- a/bootstrap/helpers/services.php
+++ b/bootstrap/helpers/services.php
@@ -128,6 +128,11 @@ function replaceVariables(string $variable): Stringable
         return $str->replaceFirst('{', '')->before('}');
     }
 
+    // Handle bare $VAR format (no braces)
+    if ($str->startsWith('$')) {
+        return $str->replaceFirst('$', '');
+    }
+
     return $str;
 }
 
diff --git a/tests/Unit/NestedEnvironmentVariableParsingTest.php b/tests/Unit/NestedEnvironmentVariableParsingTest.php
index 65e8738cc..b98f49dd7 100644
--- a/tests/Unit/NestedEnvironmentVariableParsingTest.php
+++ b/tests/Unit/NestedEnvironmentVariableParsingTest.php
@@ -206,6 +206,39 @@
     expect($split['default'])->toBe('${SERVICE_URL_CONFIG}/v2/config.json');
 });
 
+test('replaceVariables strips leading dollar sign from bare $VAR format', function () {
+    // Bug #8851: When a compose value is $SERVICE_USER_POSTGRES (bare $VAR, no braces),
+    // replaceVariables must strip the $ so the parsed name is SERVICE_USER_POSTGRES.
+    // Without this, the fallback code path creates a DB entry with key=$SERVICE_USER_POSTGRES.
+    expect(replaceVariables('$SERVICE_USER_POSTGRES')->value())->toBe('SERVICE_USER_POSTGRES')
+        ->and(replaceVariables('$SERVICE_PASSWORD_POSTGRES')->value())->toBe('SERVICE_PASSWORD_POSTGRES')
+        ->and(replaceVariables('$SERVICE_FQDN_APPWRITE')->value())->toBe('SERVICE_FQDN_APPWRITE');
+});
+
+test('bare dollar variable in bash-style fallback does not capture trailing brace', function () {
+    // Bug #8851: ${_APP_DOMAIN:-$SERVICE_FQDN_APPWRITE} causes the regex to
+    // capture "SERVICE_FQDN_APPWRITE}" (with trailing }) because \}? in the regex
+    // greedily matches the closing brace of the outer ${...} construct.
+    // The fix uses capture group 2 (clean variable name) instead of group 1.
+    $value = '${_APP_DOMAIN:-$SERVICE_FQDN_APPWRITE}';
+
+    $regex = '/\$(\{?([a-zA-Z_\x80-\xff][a-zA-Z0-9_\x80-\xff]*)\}?)/';
+    preg_match_all($regex, $value, $valueMatches);
+
+    // Group 2 should contain clean variable names without any braces
+    expect($valueMatches[2])->toContain('_APP_DOMAIN')
+        ->and($valueMatches[2])->toContain('SERVICE_FQDN_APPWRITE');
+
+    // Verify no match in group 2 has trailing }
+    foreach ($valueMatches[2] as $match) {
+        expect($match)->not->toEndWith('}', "Variable name '{$match}' should not end with }");
+    }
+
+    // Group 1 (previously used) would have the bug — SERVICE_FQDN_APPWRITE}
+    // This demonstrates why group 2 must be used instead
+    expect($valueMatches[1])->toContain('SERVICE_FQDN_APPWRITE}');
+});
+
 test('operator precedence with nesting', function () {
     // The first :- at depth 0 should be used, not the one inside nested braces
     $input = '${A:-${B:-default}}';