Nested NFT

A Nested NFT acts as a parent token that can own and manage other assets, including fungible tokens (ERC-20), other NFTs (ERC-721/1155), and even other nested structures. This creates a hierarchical ownership model where the parent NFT's metadata and state can be a function of its contents, enabling complex digital objects like game characters with inventories or DAO membership bundles.

All assets within a Nested NFT maintain their on-chain provenance. The nesting relationship is recorded on the blockchain, creating an immutable record of the bundle's composition. This is crucial for:

• Asset Bundling: Combining multiple items (e.g., a virtual land parcel with its buildings and decorations) into a single tradable unit.
• Royalty Enforcement: Ensuring original creators receive fees when the entire bundle is sold, as ownership of the nested assets is transferred atomically.

The state of a Nested NFT can change based on interactions with its contents. This enables dynamic NFTs whose appearance, attributes, or utility evolve. For example:

• A game character NFT (parent) levels up by consuming potion tokens (nested ERC-20s).
• A music album NFT updates its cover art when a new single NFT is added to the collection.
• A vault NFT's value is directly derived from the sum of the assets it holds.

The parent NFT can enforce permissioned interactions with its nested assets. Smart contract logic governs who can add, remove, or use the internal assets. This enables use cases like:

• Gated Experiences: Only the holder of the parent NFT can access the tools or content inside.
• Delegated Management: The parent NFT's owner can grant specific permissions to other addresses (e.g., allowing a game contract to use nested items) without transferring full ownership.

Two primary Ethereum standards formalize Nested NFT functionality:

• ERC-998: An early proposal for Composable NFTs that can own other ERC-721 and ERC-20 tokens.
• ERC-6551: A more recent, permissionless standard where every ERC-721 token is given its own smart contract wallet (Token Bound Account). This allows any NFT to hold assets and interact with dApps directly, making nesting a property of the account, not the token contract itself.

Nested NFTs unlock novel applications across Web3:

• Gaming: Characters with equippable items and consumable inventories stored as nested assets.
• Digital Identity: A profile NFT holding achievement badges, social graph connections, and credential tokens.
• DeFi & DAOs: A membership NFT containing governance tokens and vesting contracts.
• Digital Fashion: An avatar NFT wearing layered clothing and accessory NFTs.
• Real-World Assets (RWA): A property deed NFT containing insurance, maintenance history, and title documents as sub-assets.

A player's character NFT can contain equipped items (weapons, armor) and achievements as child NFTs. This allows for:

• Dynamic visual representation where equipped items change the avatar's appearance.
• Portable inventory where items remain linked when the avatar is traded.
• Provenance tracking for rare, nested loot components. Example: An Axie Infinity character with equipped land plots and unique item skins as separate, nested assets.

Artists create generative art where a primary artwork NFT contains multiple layered components (background, subject, effects) as individual NFTs. This enables:

• Collector remixing where owners can swap layers from different pieces.
• Programmable evolution where child NFTs can be added or upgraded over time, changing the final rendered piece.
• Royalty cascading where original creators of nested components earn on secondary sales. Example: An Art Blocks piece where the color palette and texture layers are separate, tradable assets.

An NFT representing a real-world asset like real estate or a luxury watch can nest the legal documents, insurance certificates, and maintenance history as verifiable child tokens. This creates:

• Immutable audit trails for compliance and provenance.
• Fractional ownership where the parent NFT's ownership can be split via nested ERC-20 token shares.
• Automated compliance where child tokens govern transfer restrictions or proof of authenticity.

A Soulbound Token (SBT) representing a user's identity can nest verifiable credentials for degrees, licenses, and memberships. This facilitates:

• Selective disclosure where users prove specific credentials without revealing their entire identity.
• Reputation portability across platforms via a composable, user-owned profile.
• Access control where nested membership tokens grant permissions to gated communities or services. Example: A developer's DID NFT containing nested POAPs from conferences and NFT badges for completed courses.

A film or music album released as an NFT can nest its constituent parts—scenes, tracks, artwork, scripts—as separate, licensable assets. This allows for:

• Modular licensing where studios can license specific nested clips or sounds.
• Fan engagement through ownership of iconic moments or dialogue as collectibles.
• Revenue sharing automated to all nested asset creators on secondary sales. Example: A movie NFT where famous one-liners or soundtrack stems are ownable, tradable child NFTs.

Nested structures are enabled by composability standards and registry contracts. Key mechanisms include:

• Parent-Child Registry: A smart contract (like ERC-998 or ERC-6551) that maps relationships and manages transfer logic.
• Nesting Rules: Logic determining if child tokens are bound (transferred with parent) or composable (can be removed).
• Cross-Chain Nesting: Using interoperability protocols to nest assets from different blockchains via wrapped representations. Primary challenge: Managing state complexity and gas costs for deeply nested hierarchies.

Nested NFTs enable the creation of complex, evolving digital objects. A single parent NFT can bundle multiple child assets—such as other NFTs, tokens, or metadata—into a single, tradable unit. This allows for:

• Modular Design: Assets can be assembled and disassembled.
• Evolving State: The contents and properties can change based on external events or user actions.
• Reduced On-Chain Footprint: By referencing nested structures, you avoid duplicating data.

The nesting relationship creates an immutable, on-chain record of an asset's composition and history. This is critical for:

• Gaming & Metaverse: A character NFT (parent) can own equipped items, skins, and achievements (child NFTs), with the entire kit being transferable.
• Digital Fashion: An outfit NFT can contain individual, swappable garment NFTs.
• Real-World Asset (RWA) Tokenization: A property deed NFT can nest tokens representing ownership shares, insurance policies, and maintenance records.

Nesting simplifies the user experience and management of complex asset collections by reducing transaction overhead and logical grouping.

• Single Transaction Transfers: Moving a parent NFT transfers its entire nested hierarchy in one action.
• Organized Collections: Collectors can group related assets (e.g., a complete card series, a music album with individual tracks) under a single primary NFT.
• Access Control: The parent NFT can govern permissions for interacting with or extracting the nested assets.

The structure enables novel economic interactions and decentralized organizational models.

• Fractionalized Ownership: A high-value NFT can nest fractional ownership tokens (ERC-20 or ERC-1155).
• DAO Tooling: A DAO's membership NFT can nest voting power tokens, reputation scores, and role-specific access keys.
• Royalty & Revenue Streams: A parent NFT can be programmed to automatically distribute revenue or royalties to the owners of nested asset tokens.

Nested functionality is enabled through specific smart contract patterns and emerging standards that define parent-child relationships and interaction rules.

• ERC-998: An early proposal for Composable NFTs, allowing an NFT to own other ERC-721 and ERC-20 tokens.
• ERC-6551: A more recent standard that gives every ERC-721 token its own smart contract wallet (Token Bound Account), enabling it to hold assets directly.
• Custom Implementations: Many projects implement nesting logic directly within their contract architecture without a formal standard.