Peddler's Hat

The hat only drops when the Traveling Merchant dies, and you cannot hit a town NPC yourself. Everything that works is indirect: lava, drowning, a trap, an explosive, an angry enemy left alone with him, or one of the few joke items built specifically to hurt townsfolk. Lava is the easiest to arrange and the easiest way to lose the drop, since a deep pool will burn a low rarity item before you can fish it out.

He leaves at dawn and turns up again on his own schedule, so unlike killing the Clothier there is no lasting cost. A small pressure plate room near where he tends to stand will farm it for you without any further attention.

Shimmer turns the hat into the satchel, so for some players the hat is a step in a recipe rather than the goal. Wearing it changes nothing about how the merchant treats you, unlike the Clothier and his hat, so there is no hidden dialog to go looking for.