Do you think that its still ok to ride the bike (looking at the tire sidewall). Also what are the possible reason why does that happen?
I would continue to ride that tyre as pictured.
From your photo, the sidewall has a ring of reflective material on each side of the tyre. This is to make the bike more visible in the dark, and they work quite well for this purpose.
The black rubber of your tyre is a different mixture to the reflective strip, so the strips must be added as a later part of the tyre manufacturing process, after the carbon-black rubber has been pressed in the mold.
I presume that something went wrong with the adhesion, and some part of the reflective ring was flappy, eventually peeling off completely.
I'd expect more of the ring to peel off, at the exposed edges.
Add this site to your monthly bike check, and inspect it frequently. If the tyre degrades noticeably, bulges out, or anything, then stop and reevaluate.