I'm on the VS Code team and maintain xterm.js.

Smooth scrolling in VS Code is primarily about animating scroll events such that scrolling with a mouse wheel doesn't just scroll an increment immediately but over a fixed time, updating at a high refresh rate. This is supported in both the editor and the terminal.

The other part of smooth scroll is being able to render lines offset on the y-axis which is supported by Monaco (the editor part), but not xterm.js (the terminal part). I can't actually seem to find the issue for this, but I've been wanting to implement it for a while. It's quite simple to offset the text, the slightly harder part is to render an additional row so you can see a partially rendered line on the top/bottom.