The theory you propose in (2) seems close to Neutral Monism. It has fallen into disrepute (and near oblivion) but was the preferred solution to the mind-body problem of many significant philosophers of the late 19th-early 20th, in particular of Bertrand Russell (for a long period). A quote from Russell:

We shall seek to construct a metaphysics of matter which shall make the gulf between physics and perception as small, and the inferences involved in the causal theory of perception as little dubious, as possible. We do not want the percept to appear mysteriously at the end of a causal chain composed of events of a totally different nature; if we can construct a theory of the physical world which makes its events continuous with perception, we have improved the metaphysical status of physics, even if we cannot prove more than that our theory is possible.