When you create an API using the API Publisher, you specify the endpoint of the backend implementation of it in the Implement tab. You can click the Show More Options link, to select the endpoint security scheme. If you select Secured, you are prompted to select the authentication type for the endpoint and also to give its credentials. You need to select the endpoint authentication type according to the authentication scheme that is supported by your endpoint. If your endpoint supports digest authentication, you can select the Digest Auth option from the drop down list.
Digest Authentication applies a hash function to the username and the password before sending them over the network. It is basically a process of applying MD5 cryptographic hashing with the usage of nonce values to prevent replay attacks. This approach is safer than Basic Authentication.