Diagnosis
No. A damaged non-stick coating is a safety hazard. Flakes can get into food, and the exposed metal can corrode or overheat.
How to Fix It
Stop using the basket immediately. Order an official replacement basket from Instant Pot. Part number is usually on the underside of the basket. Use only soft utensils and non-abrasive sponges on the new one.
If That Didn't Work
If the peeling is extensive and the coating is flaking into the main unit, you may need to replace the entire air fryer to avoid contaminating future cooks.
Heads Up
Never use aerosol cooking spray. It contains lecithin that bonds to and degrades the coating. Use a pump oil sprayer or brush oil on lightly.