Just looks like you have thin plaster, which has eroded, and exposed the underlying gunite. Unless you've had some major acid-washing going on, or have kept the pH below 7.2, that's an installation failure. A shell crack, after only 2 years, is absolutely an installation failure.

Didn't see any "sandy substance" in your pics, so I won't speculate there.

FC less than 1.0 with CYA > 60 ppm is an recipe for absolute failure. Read the Best Guess Chlorine page, linked in my signature, and then get a K2006 (Amazon link also in my signature).