The Joplin documentation states "...When syncing with OneDrive, Joplin creates a sub-directory in OneDrive, in /Apps/Joplin and reads/writes the notes and notebooks in it..."
I do not see this folder in my OneDrive locally in FileExplorer. Likewise, I do no see it when viewing my OneDrive on the web.
Just checking here, Onedrive usually only syncs the Documents folder to the PC. You will have to open the OneDrive Windows App, or go to the OneDrive web site to see all the directories in OneDrive, which include Apps, Desktop, Pictures, Music, Email Attachments, Microsoft Edge Drop Files, Personal Vault etc. These directories are in the root of OneDrive and may not appear in File Explorer because they may sync differently.
I am not using encryption yet, but I do see the Apps/Joplin directory which includes subdir .lock, .resource, .sync. locks, and temp as well as many filename.md where filename is a long hexadeciaml string.
I have 2 instances I use in Joplin, one syncs to OneDrive for Business, the other to Personal OneDrive. I have checked both with my browser to the online sync and have an Apps folder and under that a Joplin folder. Neither sync these folders to my OneDrive cache folder on my local drive, even though I have Files on Demand turned off and all data synched physically to my PCs.
OneDrive does not sync the data because it is used only as a cloud sync point between all the instances. I do see that OneDrive for Business defaults to the HOME button, which just shows recent stuff, if you use OD4B then make sure you click the MY FILES selection along the left hand side to actually show the files rather than this Most Recently Used selection.
If it's working, then it is there, you just might not be able to see it.