Hi @jloiacon ,
I will admit I don't have any experience with developing LTIs, however I can offer some advice on what we did for this. I had always assumed that this was a feature within Canvas (i.e. ensuring someone masquerading could only do so within Canvas, and not other tools). I anticipate this is due to auditing information being readily available within Canvas, however the external tool would only see what looked like the original user, hence could become an auditing risk.
The way we have bent around this is by creating a small number of 'testing' accounts that we can issue out temporarily on an as-needed basis to academics and learning designers to test functionality where the student-view is insufficient.
As the testing accounts have an email address, this provisions a new account through to linked LTIs and therefore enables testing without the need for masquerading.
Is that something that might satisfy your use case?
Cheers,
Stuart