Introducing ERC-7401: The Next Evolution in Nestable NFT Standards

NFTScan
NFTScan
Published in
5 min readMay 30, 2024

With the rapid development of digital assets and blockchain technology today, non-fungible tokens (NFTs) have become an important form of asset that is widely used in various fields such as art, gaming, collectibles, and more. As the market demands diversify, traditional NFT standards like ERC-721 and ERC-1155 are not able to fully meet the users’ needs, especially in terms of flexibility and interactivity.

To address these challenges, multiple innovative protocol standards have entered the market, and this article primarily explores ERC-7401 for introducing the concept of nestable NFTs, opening up new possibilities for the functionality and flexibility of NFTs.

What is ERC-7401?

ERC-7401, also known as Parent-Managed Nestable Non-Fungible Tokens, was initially named ERC-6059 but was revised and renumbered after receiving feedback from the community. The standard was proposed on 22 and finalized on September 23, with its future applications yet to be observed, but it is expected to bring improved functionality. Its core innovation lies in allowing one NFT (parent NFT) to contain one or more other NFTs (child NFTs), thereby opening the doors to managing and interacting with multi-layered assets.

The standard extends the basic NFT standard to allow nesting and parent-child relationships between NFTs. In simpler terms, NFTs can own and manage other NFTs, creating a hierarchical structure of tokens. This structure enables users to more flexibly manage and trade their digital assets while also providing more possibilities for the creation and use of NFTs. Compared to other standards, ERC-7401 is more focused on scalability and interactivity in its design, aiming to meet the needs of more complex applications.

Concepts and Innovations of ERC-7401

We are accustomed to the fact that only user wallets or smart contracts can own NFTs, but they can also “nest” non-fungible items within each other. The technical implementation of the ERC-7401 standard is based on several core points:

  • Multi-level nesting: Supports infinite levels of NFT nesting, where each parent NFT can contain multiple child NFTs, which can themselves become parent NFTs of other NFTs. This multi-layered structure provides great flexibility for asset composition and separation, as well as enabling more complex asset relationships and management strategies.
  • Asset management flexibility: Users who own parent NFTs can freely manage their internal child NFTs, including but not limited to adding, removing, or replacing them. This is particularly important when managing complex asset collections such as art series or multiple items in a game.
  • Cross-collection interoperability: Parent NFTs and child NFTs can belong to different NFT collections, providing significant flexibility for cross-brand or cross-platform collaborations. For example, an NFT collection of a movie series can contain limited edition art pieces NFTs from different artists.

Diverse Application Scenarios

The actual application scenarios of ERC-7401 are diverse and varied, including but not limited to the following areas:

  • Gaming industry: Game developers can utilize ERC-7401 to design more complex in-game economies. For instance, a character NFT (parent NFT) can include multiple equipment NFTs (child NFTs), which can be updated or traded individually, adding strategy and player engagement to the game. This not only centralizes asset management but also allows adjusting the character’s abilities and appearance through trading child NFTs.
  • Art and collectibles: Artists can provide whole or fragmented ways of collecting by creating collection NFTs (parent NFTs) containing multiple artworks. This not only facilitates artists in managing and selling their works but also offers collectors more choices and flexibility.
  • Community management: The ERC-7401 standard also has significant applications in community management. Through ERC-7401, communities can create parent community NFTs containing multiple sub-communities or activities. For example, a large community can act as a parent NFT, with its various events, conferences, and sub-communities serving as child NFTs. This way, community managers can more conveniently organize and manage community activities while enhancing community participation and cohesion.
  • Identity and certifications: In terms of digital identity authentication, individuals or institutions can issue a parent NFT containing multiple certificates or qualifications. Each certificate is stored as a child NFT, making it easier to manage and verify a person’s multiple identities or qualifications.

Impact of ERC-7401 on the NFT Ecosystem

1/ Enhancing the value and liquidity of NFTs

By introducing the nesting structure, the ERC-7401 standard can enhance the overall value and liquidity of NFTs. A parent NFT containing multiple child NFTs often has a higher value than the sum of individual NFTs. Additionally, the unified management and trading of nested NFTs can significantly increase the liquidity of NFTs, promoting market activity.

2/ Fostering innovation

The ERC-7401 standard provides developers and creators with more innovative space. Through nesting structures, developers can design more complex and rich digital assets, sparking more creativity and applications. For example, in games, developers can design game assets with multiple levels and complex relationships, enhancing the depth and fun of the game.

3/ Optimizing user experience

The introduction of the ERC-7401 standard can greatly optimize the user experience. By managing and trading nested NFTs in a unified manner, users can more efficiently manage and trade their digital assets. Additionally, the nesting structure can visually display the hierarchy and relationships of digital assets, improving user understanding and operational experience.

4/ Driving standardization process

The introduction of ERC-7401 signifies the further advancement of NFT standardization. By introducing the nesting structure, ERC-7401 provides new directions and ideas for the standardization of NFTs, promoting the normalization and standardization of NFT technology and applications. This not only helps improve the technical level of NFTs but also enhances market trust and recognition.

Technological Implementation and Challenges The primary technological challenge in implementing the ERC-7401 standard lies in processing and storing a large amount of nested information efficiently. Additionally, the security of smart contracts is also an important consideration, as complex interactions and nesting may increase the risk of smart contract attacks. Developers need to ensure contract security and functionality while optimizing contract performance and costs.

Future Prospects and Outlook

With the continuous development of the NFT market, the introduction of the ERC-7401 standard undeniably brings new vitality and possibilities to the market. It not only provides users with more flexibility and choice but also opens the doors for developers to innovative applications. In the future, we can anticipate ERC-7401 playing a unique role in more areas, driving further integration and innovation of digital assets and blockchain technology.

With the promotion and application of this standard, the future NFT market will be more diversified and dynamic, providing users and developers with a richer and more in-depth digital asset experience.

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