I removed it from both. It’s probably enough to just have the wrong password in INIT_SEAFILE_MYSQL_ROOT_PASSWORD. It shouldn’t need that at all if it knows this is an upgrade, it just needs that to create the databases and user. If it gets confused and thinks it is a new setup, having that password could trash your database.
When I did the upgrade from 11 to 12, I was also converting from not-docker to docker (actually podman pretending to be docker because I don’t like some of the choices docker made).
I would suggest that you make a VM to try the upgrade in to make sure you have the procedure worked out. Then get good backups. Then if your production machine is a VM, snapshot the VM and do the upgrade for real (with the snapshot there so you can quickly roll back and start again if you need). Yeah, that probably sounds paranoid, but my seafile has nearly 1TB of data and a few extra hours of paranoia probably saved me a few hours of recovering and apologizing to the users.
Here’s some notes I made on how I did the upgrade. I’m not sure it will be much use if you didn’t also decide to use podman, but might be worth a ready anyway.