Kube-proxy is the routing layer used by Kubernetes to route traffic between nodes in a cluster. Built on iptables, kube-proxy operates at Layer 4, e.g., it routes TCP, UDP, and SCTP.
Most traffic inside a cluster today operates at Layer 7 (e.g., HTTP, gRPC). Because kube-proxy routes at Layer 4, this can impact optimal load balancing within a cluster, depending on workload.