Let him test the waters, but unless he gets a silly offer, I would resign.
I believe that you can't coach choke, but I don't see Danny having choked. He's had a bad series against the Thunder, but it's not like Bonner*... Danny has been an exceedingly streaky shooter throughout the regular season, and was hot in the 1st 2 rounds. Now he's on the other end of the pendulum. This should make him a cheap re-sign, say 3 years, something like 2.0M, 2.2M, 2.4M (3ed year un-guaranteed).
* Note that Bonner has been non-productive (choked) every playoff series he's been in. Danny, on the other hand, produced in the Jazz and Clippers series; he's also a decent defender, unlike Bonner, who's worthless if he's not hitting the three.

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