Melt the 1/4 cup butter in a large saucepan or Dutch oven over medium heat. Whisk in the 1 tablespoon flour and 1 tablespoon powdered mustard, cooking for about 5 minutes, stirring constantly until the mixture is smooth and lump-free.
Pour in the 3 cups milk, then add the 1/2 cup onion, 1 bay leaf, and 1/2 teaspoon paprika. Bring the mixture to a simmer and cook for 10 minutes, letting the flavors meld, then remove the bay leaf. Temper in the 1 egg, then stir in 3/4 of the 12 ounces sharp cheddar, letting it melt into the hot sauce. Season generously with salt and 8 servings pepper.
Fold the 1/2 pound elbow macaroni into the sauce until coated, then pour the mixture into a 2-quart casserole dish. Top with the remaining cheese. In a separate pan, melt any remaining butter (if not all was used for the roux) and toss the 1 cup panko bread crumbs to coat. Sprinkle these buttery crumbs evenly over the macaroni and cheese.