An API proxy serves as an intermediary between a client and a backend API, enhancing the API with features like security, caching, and rate limiting without requiring any changes to the API itself. It operates by receiving requests from the client, forwarding them to the backend API, and then returning the responses to the client. Common types of proxies include reverse proxies, SSL proxies, and transparent proxies, each providing distinct functionalities. While API proxies can improve the API's security, caching, and load balancing, they typically offer fewer features compared to API gateways and may introduce challenges such as configuration complexity, performance overhead, and potential security risks. Additionally, AI proxies extend these functionalities to handle AI-specific workflows, optimizing tasks like prompt management and response streaming while reducing development time and cost for organizations using multiple AI models.