Lye (sodum hydroxide) is use in baking to produce pretzels by dissolving the lye crystals in water - in our bakery we use 2% of water weight. The pretzels are then soaked in the solution for about 20 seconds before baking. Lye is highly alkaline and accelerate the Maillard reaction (caramelisation) of the crust and creates the deep brown colour. It also emparts a distinct taste.
Lye is very potent and you should use gloves when handling the pretzels to prevent touching your skin. Immediately wash skin if contact is made. Work in a well ventilated room and use protective eyewear.