I was starting to write up a new topic on this subject, but your suggestion is so close to what I am thinking of, that it seems better to just pick up where you left off.
A small tweak to suggest is just to also remove the Mute option. I fail to see why it’s necessary at the topic level. When you’re not watching a topic, you only get notified when you’re quoted or mentioned anyway.
This way, it’s a single click to Follow or Unfollow a topic.
Not only is the interaction much simpler, but I am not overloaded with choices.
And once you’re following a topic, you have a single click to also get notifications for the topic.
That’s the same number of clicks it takes today to watch a topic, but with a lot less reading. It also makes it clear that I’m both Following the topic and subscribed to Notifications.
Here’s another mockup:
And for the sake of completeness, what it may look like on the timeline:
