It depends who/what your domain DNS is hosted on. We support a range of popular DNS providers: DNS Validation (dns-01) | Certify The Web Docs if your DNS is with one of those then generally you just need the API credentials and it’s automatic from there, the app will generate each _acme-challenge.<subdomain> as required.
If you are using something like Certify DNS (you mentioned a CNAME) which is CNAME delegation to another managed zone, then yes that requires a CNAME per subdomain.
Use option 2 with a dns provider that has an API that CTW supports. E.g We use Cloudflare which has a suitable API so it does not require any manual work at all.