Okay Merlin,
Wish you had posted this about one day earlier. I just peeled a bunch of this junk off a couple of rocks and I'm pretty convinced after reading all your replies that we're dealing with the same stuff.

I also think mine was not cyano or if so, then it would have been a different type of cyano than what I've encountered previously. We had a run-in with cyano shortly after our tank was set up and we were able to siphon it off the sand and treat the tank and contain it. This stuff is not siphon-able, not wispy and fluid like cyano. The texture is very different (velvety) but the color is the same. In fact it almost encrusted the two rocks in question.

I also have some coraline algae in the same burgundy color on different rocks and for a long time I scratched my head and could not decide what was going on... is all of this good coraline algae or is all of this some sort of velvety red algae? etc.

Here were the deciding factors for me: The two rocks with this problem were both from the same guy from MAAST and both had a little coral on the rock (one was green star polyp and the other a few zoas). In both cases the red velvety stuff began to aggressively grow in an almost encrusting way and began to choke out the coral.

I spent a couple of hours peeling it off with my fingernails and grabbing it with my tweezers. When you can grab a piece of it, it stretches and pulls off and has an almost balloon-like texture in very small bits. Underneath this mess I was able to find good old coraline algae as well as some gasping coral getting smothered. It is too soon to say whether the coral will recover but I am hopeful that it will in time.

Hope this helps! Good luck,
Kristy