Diagnosis
That's the PTFE (non-stick) coating breaking down. It's caused by using metal utensils, abrasive scrubbers, or high-heat cooking sprays, which damage the surface. Once it starts peeling, it will continue.
How to Fix It
You need to replace the basket. You cannot safely re-coat it. Contact Dash customer support directly or search online for "Dash Tasti-Crisp 2.6QT replacement basket." Make sure you get the exact model number. While you wait for the new one, you can use parchment paper liners designed for air fryers as a temporary, safer cooking surface to prevent further flaking into your food.
If That Didn't Work
If Dash no longer sells the basket, you might find third-party sellers, but be cautious about fit. The 2.6QT basket has specific dimensions.
Heads Up
Do not keep using a basket with peeling coating. Those flakes can get into your food, and the exposed metal underneath can rust. Also, never use aerosol cooking spray; it leaves a sticky residue that burns and damages the coating. Use an oil mister with a pump or just brush on oil.