The ad is for celluloid inlaid chips.

The chips are clay (or a clay mixture). The inlay is a white celluloid. Sheets of celluoid were imported from Italy in the making of check inlays. Celluloid (cellulose nitrate) was extremely hazzardous (flamable) and was later replaced by plastic (by the Burt Co.).

Inlays in the older chips were not made out of paper. Having said that, I do believe that paper was used in the really old, pre-USPC days (prior to 1910). I do have some real early chips in which the inlays were made of paper (with a clear celluloid seal). Paper inlays curled and lifted which allowed moisture to get under the inlay and stain the paper. The paper inlays curled because they were faced with clear celluoid. paper did not mate well with celluoid. When the celluoid dried out over time, the paper was not strong enough to prevent the celluoid from curling. uspc in 1910 or so began usuing celluloid inlays mated to a celluoid seal. Theses inlays did not lift or curl. Most uspc c&s inlays remain perfect almost 100 years later.

Most of the above information has come from many talks with Jim Blanchard.