It is a compression library that is in the dependency tree for a large number of other packages though not as many as zlib which is in practically everything.

xz development appears to have been compromised by some organisation in a long game targeting sshd in Debian and derivatives. Debian maintainers have a nasty habit of adding lots of patches to upstream sources which occasionally have unintended consequences. I am a long term Debian user but I wish they would stop doing this. Thankfully arch generally doesn't modify upstream as much as Debian and arch sshd doesn't link in the backdoored library.