Apple Watch unlock feature for macOS Sierra requires turning off 2-step-verification

Solution 1:

You need to disable two-step verification and enable two-factor authentication.

If you follow the steps in this article, it will show you how you can use your Watch to wake-up your Mac. One of the key parts is at the bottom of the article:

For those of you using the original Two-Step Verification instead of the Two-Factor Authentication feature introduced with iOS 10, you will need to disable Two-Step Verification on the Apple ID management site and then enable Two-Factor Authentication on an iOS device. A passcode also needs to be established on the Apple Watch.

Solution 2:

No - Apple's code to perform the unlock explicitly doesn't support two factor. I was willing to change my security, but understand your concerns.

The workaround would be to use a third party unlock service like https://www.macid.co and use their software to unlock your computer.

Sadly, I don't think their implementation is as efficient, reliable or secure as Apple's so I'm making the change Apple asked. My speculation is two-step will be shut off within a year and that two-factor will become more secure than it is today. Those are guesses and opinion, though.