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Are there flex points in that exhaust? Usually when it keeps cracking like that, it's because the engine is moving like normal during accel/decel, but there is not enough flexibility in the exhaust to accommodate that movement, and it end up cracking.
I think the coating flaking off is pretty normal for the really hot spots on the exhaust, and it's just a layer that flakes away. The rest should stay and function somewhat. This is why I prefer wraps though.
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