The essence of a ketogenic diet is to keep carbohydrate intake low enough to avoid damage from elevated blood sugar and insulin. Carbohydrate stimulates a large insulin response, because blood sugar is damaging if it gets too high, and elevated insulin also causes damage to the body over time.
So a well-formulated ketogenic diet consists of low carbohydrate intake, reasonable protein intake, and then fat added to replace the energy lost from no longer eating glucose (carbohydrate). So fat is important as a source of energy. We don’t want too much, but we certainly don’t want too little. Recent research tends to show more and more that saturated fat and monounsaturated fat are the healthiest for us. We need a small amount of certain polyunsaturated fatty acids, but we don’t need too much of them. In fact, most oils are far too rich in ω-6 fatty acids, which cause systemic inflammation if we get too much of them.
Saturated fat in the diet can have a beneficial effect by raising HDL cholesterol (the so-called “good” cholesterol). In general cholesterol is over-hyped as a matter of concern, and we tend not to worry about it too much on a ketogenic diet. But the ratio of triglycerides to HDL is an indicator of cardiovascular risk, so a low ratio is a good thing. Cutting the carbs is mostly what lowers triglycerides, and saturated fat is known to raise HDL, so the chances are that a well-formulated ketogenic diet is going to lower our cardiovascular risk.
The human body runs on glucose and fatty acids. There is actually not much need for glucose, though certain cells cannot survive without it, and the body can make what little glucose we actually need. Fatty acids and ketone bodies (which are partially metabolised fats) are the other source of the body’s energy, and there is some indication that they may actually be a better fuel than glucose, since they generate slightly more ATP per gram than a gram of glucose does, and they have less potential for causing damage from oxidation and glycation. Polyunsaturated fatty acids are of concern, primarily because they can be inflammatory, but also because the seed oils (soybean, safflower, corn, sunflower, and the like) contain polyunsaturates that the body did not evolve to deal with well, and they can have bad effects when taken into cell walls, for example (all cell walls are made of fat and cholesterol).
If butter bothers you, you can try ghee, also known as clarified butter, which is pure fat with the milk solids removed. But do what makes you feel best. Avocadoes have a fair amount of saturated fat, and I suspect that you might be eating more than you realise. If you’d like to post your sample diet, people could look it over and give you their thoughts. Just remember that fat is not magical, but it is the macronutrient that causes the lowest insulin response. We don’t want a lot of insulin, but we do need some, or we’d starve to death. Fat stimulates only enough insulin secretion for the body to benefit from, which is why we recommend it as the primary energy source. The body doesn’t like to use protein for energy, because it is important for building tissues.