Ok, What the heck is going on here.

Yep. Microabrasion, though from what, who knows.

"Sandblasted", indeed. Environmental damage, almost certainly.

 

My theory? It's a "parking lot penny". Though not as severely roadkilled as a penny found in an asphalt or gravel lot, this one was probably in a sand lot and got run over or walked over several times.

That, or some kind of beach scenario is possible, though having dug a few coins on beaches, I find those tend to look a little bit different.

Sand or other fine grit made those tiny abrasions.

 

I think a tumbler would've smoothed out the abrasions, unless somebody used a really coarse medium.