Frenchie gives a better description of his powers:
He can re-order his carbon on his skin into metamaterial. It's hard as diamonds. It's nearly impossible to penetrate.
Based on the wording, it implies that his skin is not always impenetrable. He has to activate it. So the in-universe answer would be that he didn't turn his skin in to metamaterial on explosion.
Out-of-universe answer was answered in this AMA by co-creator Erik Kripke.
Yes, you're absolutely right, the skin should have contained the blast, but then we'd have missed out on that amazing bloody explosion of "blood and meat" (cause Translucent predicted his own death). One solid writer's room rule: "Keep Your Rules in Mind but Never Logic Yourself Out Of Entertainment.