Attempted deep frying smoke fiasco
When deep frying, the most important piece of equipment you can have is a decent thermometer--many candy/frying thermometers have a clip that can be positioned on the edge of a dutch oven so that you can keep watch of the temperature while frying (like this one).

Different oils have different smoke points. For refined peanut oil, the smoke point is 450°F / 232°C. It sounds like you got your oil too hot, and it reached the smoke point. This can be very dangerous. Just above the smoke point is when oil can actually ignite, causing a serious fire risk.

Generally, you would want to fry well below the smoke point temperature. Recipes generally will recommend frying temperatures of 300°F / 150°C to 375°F to 190°C, depending on what you're frying. 

Trying to regulate heat simply by using the knob/setting on your stovetop is not a reliable way to maintain heat when deep frying. Using a thermometer will help ensure you are able to keep oil in the desired range.