No matter how good option 1 is it is an additional processing stage that can go wrong or introduce errors. Whereas option 2 means that it is always possible to start processing from the beginning.
The problem is really one of terminology : a tiff file conforms to both the structure rules and data type laid out in the tiff specification. A raw file follows the structure rules but not the datatype. A dng is an extension of tiff that allows raw data and requires certain meta data but also allows demosiaced data as do raw files because the programmer can place anything they want into them.
What I find perplexing is that DxO PL is unable to open dngs based on raw files from cameras it has no knowledge of and also the reports that Capture One makes a better conversion from camera raws than it does from dngs based on the same raw files. These two issues seem to contradict the major “selling” point of dng files which is future proofing the raw data.
I think that I am going to ignore dng for the time being and possibly look at using Exiftool to read xmp keyword data and write it into the original raws. I will have backups before I try this!
best wishes
Simon