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No one seems to have done it yet and personally I think it's a very cool feature to have. And although the Devs did gave all the resources for it they haven't done much in the instructions department, you go, comrades.

So the first thing you need to do is go here and download the Mod.

Once that's done you need to go to your AppData folder (I'm assuming you're on Windows btw) and then you should locate the game's "hidden" folders: through LocalLow ---> AtomTeam ----> Atom. There create a folder named "Mods" (without the quotes).
Unzip the Mod and put its folder in there.

You should now see 3 things inside the Mod's folder, 2 files and 1 folder. Inside the folder you should see another folder and inside it yet another folder. And then comes the good part: inside that last folder you should have 2 sets of files (4 total files: ava2.png/ava2.asset and ava21.png/ava21.asset). Those are the actual custom avatars (pictures) and its settings.

Obviously those are just templates. You can create all the avatars you want now. Just keep this in mind: you always need to have a set (a PNG and ASSET file). The valid slots you can replace are 40. So you need to name your sets anything from ava0 to ava39 to be able to use them in game.
The best way to create new avatars is to just use the available templates and just rename the files. So for example, you could put a new picture in there and name it ava5.png, So then you just make a copy of ava2.asset or ava21.asset and change the name to ava5.asset (creating the "set").

Next you need to edit the .asset file. You can do it with Notepad or any text editor you have. When you do, you'll get this:

"hairColor": 4,
"hair": 3,
"beard": 5,
"gender": 0

(ava2.asset is the example here)

And are the values for the variables in the config file:

hairColor = 0-7 range: Random (0), Dark (1), Brown (2), Gray (3), Blond (4), Blond_2 (5), Foxy (6), Dark Gray (7)

hair = 0-13 range: Random (0), hairless (1), businessman (2), facon (3), tail (4), girl_wavy (5), girl_braids (6), girl_bouffant (7), girl_bob (8), girl_pony tail (9), girl_high bangs (10), girl_medium bangs (11), girl_parted bangs (12), unique short (13)

beard = 0-8 range: Random (0), shaved (1), whiskers (2), mustache (3), beard (4), short beard (5), beard and mustache (6), short beard and mustache (7), long beard and mustache (8)

gender = 0-1 range: male (0), female (1)

So just change the numbers to what best seems to fit the avatar you have and save the file.

Launch ATOM. Enable My Avatar mod and then reload the game.

One last very important thing to keep in mind: the PNG dimensions need to be 155x180 (as you can see in the template pictures).

I hope I was clear enough. Any doubts just leave a message here or send me a PM and I'll try to help.

Enjoy making custom avatars! =)