In a glass cup/bowl, add water, milk, yeast, and 1 tablespoon sugar. Allow the yeast to froth up and set aside.
In a stand mixing bowl combine the flour, sugar, and salt. Add in the butter, egg, egg yolk, vanilla, and yeast mixture. Mix on medium speed until everything is well combined.
Grease a large bowl and place the donut dough, cover and place the bowl in a warm place to rise (1 hour).
Once the dough is doubled in size transfer the dough to a floured surface and roll the dough using a rolling pin (½ inch thickness).
Using a donut cutter or cookie cutter with different sizes cut out the donuts and place them on a baking sheet.
Cover the baking sheet and allow the donuts to rise for 15 minutes and meanwhile preheat the air fryer to 345 F.
Grease the air fryer basket and gently place the donuts without touching each other. Air fry the donuts for 4 minutes.
In a medium bowl combine sugar and cinnamon. Mix well. Coat the donuts with cinnamon sugar on both sides once the donuts are out from the air fryer basket. Repeat the same with the remaining donuts.
Serve the donuts while it is still warm and store the remaining in an airtight container.