Looks to be a leather of some kind that is somewhat retracted, either irritated or shedding (think they do that), with algae or cyano growing on the base. I would try to blow it off with a turkey baster/flow. My assumption is that the algae/cyano is not the irritant, rather is just opportunistically growing their while the coral is like that. . .
Could be totally wrong though
As far as the retraction goes, if your parameters are OK I would chalk it up to a soft coral being a soft coral (doing weird things sometimes) and keep an eye on it.