A general guideline for blade depth through the drive is to have the top edge of the blade either flush with the surface of the water, or slightly below. Some argue, however, that a deeper blade helps with balance/stability during the drive - especially in smaller boats.
Comparing simulation results for a blade with its top edge at the surface of the water with those for a blade buried 10 cm below the surface of the water, an increase of over 1% in propulsive efficiency is seen for the more buried blade. However, the simulation does not account for the extra part of the shaft that is below the waterline and the extra time/effort needed to get the blade in deeper at the catch and out at the finish.
Also, a side note is that a deeper blade will have less slip - meaning all things being equal, a deeper blade will feel heavier for the rower.