I believe your experience is saying that Iodine is not making this worse. If it were, the spots would not be fading. It sounds like you have a winning combination in coconut oil and iodine.
One experience I've had with scalp cysts is that the Iodine is best able to penetrate the cyst when it is mixed 50-50 with DMSO. The DMSO helps carry the Iodine through the tough outer layer. I have no idea whether this might be useful in your case. I only mention it for you to store in your "useful tidbits" vault.