[Karunamon]

Why would they choose the latter when it's the most expensive option?

Also, outright revocation of 230 is just one option. Companies at Facebook/Twitter/Reddit scale would do nearly anything to keep that protection since moderation at that scale simply is not possible. This gives an inroad to all kinds of regulation.

Alternatively, your second scenario happens, and it likely leads to the destruction of large, centralized social media, and a proliferation of decentralized, hard-to-sue alternatives. This too, is a win.