Stir warm water and sugar in a large bowl. Sprinkle in yeast and let foam 5–8 minutes.
Whisk flour, salt, and nutmeg in a separate bowl to combine evenly.
Pour the foamy yeast mixture over the dry ingredients. Add vanilla, if using.
Mix into a thick, sticky batter. Beat 2–3 minutes to build structure.
Cover the bowl and let the batter rise until doubled, about 30–40 minutes.
Heat oil in a deep pot to 350°F. Keep a wire rack or paper towels ready.
Scoop small portions with oiled hands or a spoon. Fry in batches until golden, 3–4 minutes.
Turn often for even color. Drain on the rack. Serve warm, dusted with sugar if desired.