I think it's the first one. Law felt satisfied with the time they spent together in the VR and he didn't actually want to be equals so he didn't want to go further with that. He was like 'i achieved my goal, you can just continue to live your life now', so he wanted to let Jesse go while he wastes away in the old one.
Law is an unreliable narrator! He becomes more lost and obsessed than ever after leaving vr because part of what made him obsessed with Jesse was his unbreakable will. After achieveing his goal of “breaking” Jesse I think he realizes how meaningless it was if he had to go to such lengths to engineer it. In the end I think he understands that what he did will always make him inferior to Jesse and didn’t think of what would come next so he goes to self soothe, himself the one that ended up mentally broken instead. Even after all that, Jesse remains strong of mind and will. He even decides to go back for Law, feeling that he finally fully understands how deeply unwell he is, unable to leave him alone. As kids, Jesse did love Law but he could also live without him because he is strong mentally. He says very directly to Law as a kid that “this is the last time he will sob over him and lose his composure and act dependent”. Think about it, most people can live on after loss. Jesse is one of those people who will have regrets, but will pick himself up. He wanted Law, but would not throw his own life away to have him and tells Law this. Law wants obsession. He wants somebody as obsessed as him because he thinks it will ease his anxiety. But after everything in VR I think he realizes that didn’t bring him the comfort he thought it would.
Okay so peeps here are confused on why the blondie did all that shiz of virtual reality and stuff and I kinda understand what all this was about. So yeah blondie was insecure about Jesse not needing him so he made Jesse sip some drugged tea and then made him enter the vr where blondie appeared to be the only sane person and thus Jesse was cornered into relying on blondie. In the end when they both decided to die together, blondie's motive was complete. Hmm, although I'm not sure why he didn't persue Jesse when they woke up. Was he just planning to give up on Jesse and die afterwards? Or did he already knew that Jesse can't live without him so he waited for him? The last one seems like the most plausible. Psychologically manipulating Jesse into being dependent on blondie. So yeah this is what I somewhat understood