here is what I've put together:

make_avatar() (
  room_id=$1
  roomhash=$(md5sum <<<"$room_id" | cut -d' ' -f1)
  filename="$scratch/$roomhash.avatar"

  curl "https://www.gravatar.com/avatar/${roomhash}?d=identicon&f=y&s=2048" > "$filename"
  echo "$filename"
)

upload_media() (
  FILEPATH="${1}"

  mime=$(file --brief --mime "$FILEPATH")

  # Upload image to image.png
  curl \
    --silent \
    -H "Content-Type: $mime" \
    -H "Authorization: Bearer ${AUTH_TOKEN}" \
    -X POST \
    --data-binary "@${FILEPATH}" \
    "${HOMESERVER}/_matrix/media/r0/upload?filename=image.png" \
    | jq '.content_uri'
)

set_room_avatar() (
  ROOMID=$1
  MXC=$2

  # Build m.room.avatar event
  EVENT_SET_AVATAR=$(jq -n '{ url: $mxc }' --arg mxc "$MXC")

  # Push event
  curl \
    --silent \
    -H "Content-Type: application/json" \
    -H "Authorization: Bearer ${AUTH_TOKEN}" \
    -X PUT \
    --data "${EVENT_SET_AVATAR}" \
    "${HOMESERVER}/_matrix/client/r0/rooms/${ROOMID}/state/m.room.avatar"
)

In reply to @grahamc:nixos.org
hrm I tried to add a URL parameter to the community room's avatar but it breaks the rendering: "avatar": "mxc://nixos.org/721c442bc81f9fedaeada3ad89af693666619889?autogenerated=1"

That's generated by

#! /usr/bin/env nix-shell
#! nix-shell -i sh -p inkscape

val=$(echo "Let's test it" | sha512sum -)
color1=${val:0:3}
color2=${val:4:3}
echo $color1
echo $color2
cat nix-snowflake.svg \
    | sed "s/7EBAE4/${color1}/gi" \
    | sed "s/5277C3/${color2}/gi" \
    | inkscape -z -w 128 --pipe -o new.png

If you want to keep some reference to the room name: This will use the first letter of the second word and write it in there, too:

#! /usr/bin/env nix-shell
#! nix-shell -i sh -p inkscape imagemagick

INPUT="Nix Matrix Discussion"
LETTER=$(echo "$INPUT" | awk '{print $2}' | head -c1)

val=$(echo "$INPUT" | sha512sum -)
color1=${val:0:3}
color2=${val:3:3}
color3=${val:6:3}
color4="000"

cat nix-snowflake.svg \
    | sed "s/7EBAE4/${color1}/gi" \
    | sed "s/5277C3/${color2}/gi" \
    | inkscape -z -w 256 --pipe --export-type=png --export-filename=-\
    | convert png:- -font "DejaVu-Sans-Bold" -gravity center \
	      -pointsize 128 -fill "#${color3}" -stroke "#${color4}" -strokewidth 4 -annotate 0 "$LETTER" \
	      new.png