Godot does not have built-in yet physics interpolation yet, so you have to use the smoothing-addon for now.
I tried doubling the physics FPS to 120 in settings and the game gets butter smooth (with minimal impact to performance) but I read that this would make the game nearly unplayable on 60hz monitors and/or older GPUs.
Using a multiple of the monitor refresh rate for the physics FPS doesn't look too bad, but it will increase the game's CPU requirements. Using greater physics FPS also reduces input lag and improves overall physics stability (especially with stacking RigidBodies), so it can sometimes be useful.