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Umm I have a slightly different interpretation:
I would interpret it as 'your faith is shattering as it is now walking on broken glass - and it hurts you physically and your soul' - a slightly more 'poetic' take on it. And similar to your first interpretation.
I don't think your 2nd interpretation is quite the same but rather, the opposite of the true meaning.
Is this from a Green Day song? If it is, then it's in the part where it sings about a broken heart and the person's losing faith in the world and all that is around him/her. Faith should be a rather strong 'thing' within a human being but now that's also weakening. The person is desperate and lost.
It's also similar to 'hanging by a thread' - if 'your faith is hanging by a thread' then it's quite prone to be dropped and broken at any time.