Interpolation code (smooth states):

    static void interpolate(Vector2 newPosition, Vector2 oldPosition, float fraction, Vector2 vertex) {
        vertex.x = (1 - fraction) * oldPosition.x + fraction * newPosition.x;
        vertex.y = (1 - fraction) * oldPosition.y + fraction * newPosition.y;
    }

Physics update code:

    // delta is time elapsed since last frame.
    // this is called every frame.
    // It returns the accumulator
    public float update(float delta) {
        physicsDelta += Math.min(delta, 0.25f);
        while (physicsDelta >= GameWorld.timeDelta) {
            rememberWorld();
            protagonist.body.applyForceToCenter(force, true);
            world.step(GameWorld.timeDelta, 8, 3);
            physicsDelta -= GameWorld.timeDelta;
        }
        return physicsDelta;
    }

Remember world code (reset smooth states):

    // Remembers the current state of the world
    public void rememberWorld() {
        for (int i = bodies.size() - 1; i >= 0; i--) {
            GameCircle body = bodies.get(i);
            body._lastPosition.x = body.getX();
            body._lastPosition.y = body.getY();
        }
    }

Rendering code:

    private void renderCircle(GameCircle circle) {
        tmpVertex3.x = circle.getX();
        tmpVertex3.y = circle.getY();
        GameRenderer.interpolate(tmpVertex3, circle._lastPosition, physicsDelta / FIXED_TIME_STEP, tmpVertex1);
        mapCoordinate(tmpVertex1.x, tmpVertex1.y, tmpVertex2);
        float radius = scale(circle.getRadius());
        sprite.setBounds(tmpVertex2.x - radius, tmpVertex2.y - radius, radius * 2, radius * 2);
        sprite.draw(batcher);
    }