Horizon of Darkness

Another player could be the host.

Possibly.

What would happen in that case? Whose stats would be used? How?

I thought about it a bit and decided:

Option 1: Only the sword is upgraded; the host is not upgraded.
Option 2: Only the host is upgraded; the sword is simply a weapon that is better than a regular weapon.
Option 3: Both the host and the sword are upgraded, and they are essentially companions to each other, which means that one skill slot and one VI-level charge need to be reserved for each, without the possibility of replacement, except in the case of death.

Another option would be spirit-controlled armor/golems in the sword, but it would also be strange if the difference between better and worse armor for the sword-character was purely visual.

In general, the ability to create various funny characters is really cosmetic.

3. Don't expect too strong bonuses.

But above, I wrote a possible implementation: a sword-character and a regular character are essentially jointly acting regular characters.
The question of implementing such a system arises, and I am not against thinking about it if you also want to