I am sorry to hear your daughter is being teased so much, it is a shame children don't understand how cruel they can be. My younger sister was graced with beautiful hair like your daughters and she was teased as well all through school. She dealt with it by getting it braided, straightened, or covering it up, sadly none of these options allowed her to wear her hair naturally and I do not know if that is something you want to do with her hair.
As my sister got older, she learned to love her hair and wears it exactly as your daughter does now. She loves her poofyness but she had to get there on her own. My mother helped her by allowing her to style her hair how she wanted during school. If she wanted it braided or in twists, my mom found a salon that would do that for her. When she wanted to wear it relaxed, she found one that would do that too. Unfortunately your daughter feels uncomfortable in her own skin because of teasing, so maybe a natural look isnt right for her right now. What matters most is finding a style that is acceptable for both of you and helping her boost her confidence herself.
My sister was the same at a younger age, very very shy as a kid, and did not care when we told her that her hair was beautiful (i've always secretly wished I had her hair lol). Now as an adult, she is very outgoing and adventurous, she teaches in Korea now, a decision she made on her own despite having no family there. And she loves loves loves her hair, even though she is constantly approached by Korean women asking if they can touch it lol.
Perhaps asking your daughter to look through a magazine or of pictures of hair styles she can find one she will be happy with (IF that is an option for you). It could also help boost her confidence knowing she picked that herself. If you just want a way to tone down her natural hair, that is probably something someone else will have to advise on, I really do not know. Nothing we tried tone down my sisters hair worked either. I just wanted to share my own experiences that I had with my sister. I really do think her being given a choice and some control helped her with her confidence issues with her own hair.