Set the Traeger to 225°F and preheat with the lid closed. Line a rimmed baking sheet or grill-safe tray with foil.

In a large bowl, combine the egg, breadcrumbs, milk, diced onion, garlic powder, smoked paprika, salt, and black pepper. Add the ground beef and mix gently until just combined.

Place about half of the meat mixture on the prepared tray and shape it into a low rectangle. Leave a border around the edges. Arrange the cheddar down the center, then cover it with the remaining meat mixture. Pinch the edges and ends closed so the cheese is sealed inside.

Brush the top and sides with half of the barbecue sauce. Place the tray on the Traeger and smoke until the center reaches 150°F, about 1½ to 2 hours. Check the temperature in the meat, avoiding the cheese-filled center if possible.

Brush the remaining barbecue sauce over the loaf. Sprinkle the crispy fried onions over the top and continue cooking until the center reaches 160°F, about 15 to 25 minutes more.

Carefully remove the tray from the grill and let the meatloaf rest for 10 minutes before slicing. This helps the loaf hold its shape and keeps the melted cheddar inside.