This might seem like a somewhat arcane topic. But it was a very hot topic back in the 1780’s. James Wilson of Pennsylvania was one of the more prominent proponents that it was formed by the people.
In his view, it was the people who declared their independence. And it was the declaration that formed the basis to transfer power from the crown to a new entity to be governed by the people. Wilson, btw, was one of the most sophisticated lawyers of his day and was a signer of the declaration of independence.
So what is the big deal? It is a very big deal. If sovereignty was created by the states, the states might conceivably take back what they had conferred. If it was created by the people, a state declaration of secession would be less legally sound.
Lincoln understood this and made it a central argument for resisting the secession of the southern states. They were trying to do something that they did not have the power to do. Wilson’s and then Lincoln’s view that the declaration of independence, rather than the constitution, was the core founding document also formed the basis for asserting that indeed, all men are created equal. That idea appears nowhere in the original constitution.
BTW. w see a parallel issue arising now in Europe. Brexit is possible only because Great Britain conferred sovereignty to Europe, not the British people directly. The EU exists only if its member states want it to continue.
We get a new look at the debate of the 1780’s after the discovery of a new parchment manuscript of the declaration of independence that was found in the UK. It was likely created by Wilson to be sent to Charles Lennox, 3rd Duke of Richmond. Lennox was known as the “radical Duke”. for his anti-colonial stance support for the American revolution, as well as reconciliation with Ireland.
Wilson (most likely Wilson, in any event) rearranged the signatures to the declaration so that they names are no longer organized by state.