Why does the prototype become invalid when you put a frame with a prototype into another frame or autolayout?

This is painful for people like me who like to organize their designs with autolayout!

Because prototypes work based on top-level frames.

Organize your designs with Sections. Nobody organizes their designs with autolayout as it’s not how it’s intended to be used and creates many unwanted side-effects like in your example.

If Sections could support Auto Layout that would be nice though.

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Totally agree! Section doesn’t support auto-layout and it’s hard for OCD!