Dropdown list of people from a SharePoint user group

I too have come across this scenario (but on On-Premise). I went on to implement the Option#1 that you have mentioned, wherein I came up with a common function which was used for multiple such controls.

1. On New form
   1. Get list of user by making REST API call and bind it to drop-down as options
   2. On drop-down change, event set the drop-down selected value to a hidden People Picker control which is mapped to List column
2. On Edit form
   1. Get list of user by making REST API call and bind it to drop-down as options
   2. Get the hidden People Picker value and set it as drop-down selected value

NWF$(document).ready(function () {
if (Is New Mode)
BindApproverNames(NWF$("#" + choApproverName));
if (Is Edit Mode)
{

SetApproverNames(NWF$("#" + choApproverName),NWF$("#" + pplApprover));
}
});

function BindApproverNames(control)
{
control.find('option').remove();
control.append('<option value=""-1"">' + 'Please select a value...' + '</option>');

NWF$.ajax({
type: 'GET',
url: <<url>>,
dataType: 'jsonp',
contentType: 'application/json',
async: true,
success: function (data) {
if (data.esError != 'undefined' && data.esError.type != '' && data.esError.type == 'S')
{
NWF$.each (data.employees, function (key, value) {
approverNames.append('<option value=' + value.employeeId + '>' + value.fullName + '</option>');
});
}
}
});
}

function SetApproverNames(control,pplControl)
{
//get employee ID of the value in the People Picker- You can costomise as per your needs
var approverID = "";
var selectedAccount = pplControl.val();
var slashPos = selectedAccount.lastIndexOf("\");
var selectedLogin = selectedAccount.substring(slashPos + 1,selectedAccount.length-1);
// Getting selected user details from AD via ADLookup Web API
var wsURL = WebApiUrl + 'ADLookup/GetUser?Id=' + selectedLogin; //this is custom
NWF$.ajax({
type: 'GET',
url: wsURL,
dataType: 'jsonp',
contentType: 'application/json',
async: true,
success: function (data) {
approverID = data.employeeId;
}
});
//since employeeId is used as value in the drop-down option
NWF$("#"+ choApproverName).val(approverIDValue) ;
}